Tuesday, 20 May 2008
Leveraging the Casino: LSE
Some of you who read this are no doubt investors in stocks and shares. I read with interest yesterday about the latest wheeze by the LSE to boost their flagging AIM market.
AIM was a great success story for many years and one of the key drivers that brought global finance to the UK and away from New York. With AIM the LSE was for a couple of years able to beat both NASDAQ and NYSE put together in terms of listings.
However, AIM is split into overseas mega-co's from China who are raising money in the West for the first time and then the UK very small co's who list to try and gain some backing.
As a result of the 1600 AIM companies, over 1000 have virtually no trading. So the LSE is to make analyst reporting on them available on the cheap. The last wheeze was to make them all have a website.
However, company sponsored analyst reports are not exactly a good way of understanding a company from an investor's point of view; they are inherently rose-tinted. As much as I applaud the LSE for trying to support their own business, they are really just encouraging gambling at the casino. No one knows whether many of these companies will make it and so investing is often a pure punt, no different to going into William Hill's.
Structurally though, I think this shows the limits of the LSE model for AIM. Small co's list and do well or blow up, this is not very confidence inspiring. This model worked well for times of global growth, perhaps the future will require a different model for giving access to capital (and sadly this may well involve Sovereign Wealth Funds rather than our City institutions)
As ever, Caveat emptor.
Posted by CityUnslicker