London vs Other Financial Centres
One of the themes that the mainstream media is currently enjoying is the idea that the London stock market is losing out to competitors such as Paris and New York. There are a couple of points to make on this that perhaps should have been made, but that do not fit in with a) The UK has gone to the dogs because of Brexit, and b) the press loves a negative story, especially when it comes to money being lost (bad news sells).
What can be said, trying to be as objective as possible, something few these days are, is that each of the major financial centres, be they New York, London, Frankfurt, Sydney or wherever, each have their own niche. The second point is that the stock market changed listing rules a couple of years back, generally raising market cap minimums, which was a major barrier to entry. £30m on the standard list, £6m on AIM, even £2m on Aquis.
There are at least two possible explanations for this. The FCA needed to cut down the amount of companies on the market, because it simply could not cope with all the over-regulation it had and still has to regulate. At the same time for companies, the accountants / lawyers / red tape / admin bills are now horrific. I have spoken to many private companies in recent years, who would be great on the stock market, but who shudder at the prospect because of all the barriers to entry.
Plus of course when you get onto the stock market, in the small cap space especially, there is the mudslinging, the bulletin boards, social media, insults et al to deal with. This not only comes from the keyboard warriors and armchair Warren Buffetts, there are plenty of self-proclaimed vigilantes (despite the massive and costly regulation), who sing to the hills when they are right (normally when a company fails), and go quiet when they are wrong. This kind of toxic, often macho behaviour, may have its place in some dark online locations, but the name calling, insults, and schoolyard bullying from usually failed people does not really have a place on the capital markets.
Unfortunately, even at the “blue chip” end, things are no walk in the park. Once again, most in the market from have an agenda, which is not usually aligned with the best interests of investors, especially in terms of informing them in a balanced way. Sucking them into a bubble, or scaring them out at the bottom seems to be the common outcome. For example, even more than a decade on the whole crypto space has not exactly been given a fair ride, with great schadenfreude is on tap when something goes awry there. In contrast, it is not as if the traditional financial system has covered itself in glory since say, the Global Financial Crisis, and even now fiat banks are going bust as much or more than the cryptocurrency brigade.
But looking at things from a constructive angle, I was reminded recently when I interviewed a company called Equipmake (EQIP), where the clue is in the name as far as what it does. It has also managed to flourish in terms of market cap on Aquis, at £76m, and just needs the oxygen of publicity to gets its message across.
At least in recent weeks, some of the stocks which private investors have been willing on, and willing up seem to be getting the right kind of engagement. We have seen this with Greatland Gold (GGP), Premier African (PREM) and First Class Metals (FCM). Let us hope this is the beginning of a more friendly trend in the small cap space.
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