Most people see the beginning of a new year as an opportunity to start with a clean slate. They set themselves goals and look forward with a sense of optimism and renewed purpose. However, finding reasons to positive about the coming year is tough ask. The business pages at end of 2024 and beginning of 2025 have been full of pretty negative stories about the state of the London stock market. None of what these articles say is a surprise.
We all know about and are deeply frustrated by the challenges: the number of companies listed in London shrinking; more companies delisting than new companies listing; a handful of IPOs in 2024; low valuations resulting in takeovers by foreign companies which then switch their listings to New York; resurgent alternative European markets, and the dwindling investment by pensions funds in UK shares. There has even been a call for a Royal Commission to investigate ways to halt the slide.
On 20th January, things are likely to get even worse for the London market: President-elect, Donald Trump will be inaugurated to his second term in the White House. Already, at the end of 2024 there was a US stock market rally on the back of Trump’s election victory. Many investors are looking forward to seeing him in action and have high-hopes for big tax cuts and sweeping deregulation that will boost the economy and further drive-up US stock values. The expectation is that there will be a boom in US IPOs and a spate of mergers and acquisitions with UK businesses and AIM companies in particular, in the cross-hairs, aided and abetted by low UK share valuations and a stagnating UK economy.
Despite Wellcome Trust Chief investment officer, Nick Moakes’ reported comments that ‘he has become “increasingly wary” of the stretched valuation of the big US tech stocks’ (‘What lessons can one glean from Wellcome’s investment thinking?’ The Times 16/01/2025), I suspect that we can abandon any hope of technology, or fintech entrepreneurs choosing London over New York for their IPO for the foreseeable future.
Rather than howl at the moon by trying to compete, we should change focus and look for the opportunities that this situation creates. There are industry sectors that will not benefit from a Trump presidency and as luck would have it, these are industries where AIM has a history of performing well. Let’s capitalise on it!
Trump’s exhortation to “Drill baby, drill” and rejection of all things sustainability-related, means that companies involved in mining for rare minerals; production of green energy such as geothermal, wind, tidal and solar power; and development of green technology; as well as all of the businesses supporting the transition to net zero such as, those clearing-up waste from mining and other heavy industries; or converting municipal waste into fuel; or innovating sustainable construction and building materials; or developing technology that enables businesses and organisations to measure and reduce their energy consumption; to name just a few, will all need non-US finance.
In addition, the news that many big-name US asset managers are pulling-out of the global Net Zero Asset Managers initiative (a voluntary alliance which supports investment strategies aimed at achieving net zero greenhouse gas emissions by 2050 or sooner), means that many businesses in the net zero industry may find it more difficult to find private equity funding in future. They are equally unlikely to secure a high valuation on the US markets as a result of Trump’s climate change-denial bias. We should attract fast-growth start-ups and entrepreneur-led businesses in this sector to London and transform AIM into the global green business hub.
The US may frown at all things green, but many parts of the world, including Europe are accelerating their focus on renewables and sustainable business. Canada and Australia for example, are home to a healthy number of rare mineral mining and green energy companies that may require more funding for future growth than their local markets can provide. London should target these companies to be the market of choice for secondary listings rather than the US, to further bolster its green business hub position.
The realisation of this ambition will not happen by itself. Some significant interventions are required to stimulate the market before London enters into a doom-loop where increasingly larger proportions of investments are siphoned-off into other markets with better returns until the London market’s lack of liquidity fails to attract any investors at all.
The Government should lose no time to introduce some quick-win and longer-term solutions that would make a difference to the market’s outlook. For instance,
- All AIM companies and any companies on the main London stock market with a value below £250 million should be exempt from the Public Interest Entity requirements
- Cut the regularity of reporting for smaller companies
- Encourage UK-registered pension funds to invest a proportion of their funds in UK start-ups and early-entrant shares
- Scrap stamp duty on shares
- and create a tax incentive for retail investors through some kind of ISA-like vehicle, to buy British.
That should get things going!
This article was originally published in Q1 2025 AIM Advisers Rankings Guide. For more information, please contact Joseph Archer.
