Sunday 21 October 2012

AIMing Opportunity?

You will have seen our post yesterday that we believe that the FTSE350 mining sector is materially undervalued; in this post we look at the wider AIM index.

AIM is of course a general “risk-on” play. With a whole heap of small companies across many sectors there is little correlation except at a high level. Given the nature of small companies they tend to be event driven stocks too – highly likely to re-rate on good or bad news at specific points in their development cycle. 

Of course since the early 2000’s there has been a big move to list more and more resources stocks, so AIM does have more of a correlation with the mining sector. But there is also a general steep decline in volumes traded over the past 5 years – not that surprising as five years ago was 2007 and the height of the bull market:





2012 to Sep


What we can see thought is s gradual recovery in volumes, this year should top £40 billion of trades the way things look for 3 quarters in. 

Then we have the comparison to the FTSE 100, since May this year there has  a been a big move to separate apart in the index tracking, with the FTSE100 12% better off than the AIM index. Over the last 10 years, this is one of the most extreme moves apart in the indexes. Clearly, the ‘risk-off’ environment with the disastrous macro-economic background has contributed this. What is encouraging thought is that generally the indexes move in tandem – this suggests a decent move up by AIM is possible over the next few months. 

Even better, if you are long on an event driven stock that has positive news, then you may well be in a very sweet spot, with a general index re-rate and also a stock specific re-rate. Time to get searching! 

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1 comment:

Budgie said...

I don't think an AIM stock will rise unless it is for a "stock specific" reason. I can see no reason for AIM to rise generally, especially given that AIM businesses find it so difficult to get bank finance for their developments. It is not business as usual.