Jordan’s Quarterly Market Insights

Jordan Anderson - Manager, Capital Markets, Link Group
03 August 2020

Is there hope for UK primary markets?

We find ourselves in unprecedented times as we all adjust to new risks and new ways of working. The markets have been on a rollercoaster journey, declining more than 40 per cent in the second half of March and early April, but managing to pare this loss by half throughout May and early June. Not the most auspicious year for AIM to be celebrating its 25th anniversary.

Primary markets have all but closed for IPOs with attention focused on follow-on offerings by already quoted companies, which have been raising significant amounts of capital, whether to bolster balance sheets or to fund future opportunistic acquisitions.

There were only three new entrants to AIM in Q2 2020: Trident Resources, Savannah Energy and REDT Energy. However, it is worth noting that Trident was a transfer from the Main Market and Savannah and REDT were reverse takeovers. This compares with four IPOs in Q2 2019 when Brexit was the primary dampener on the markets. Stretching back further and drawing a comparison with the 2002-2004 SARS outbreak, there were 12 AIM IPOs in Q2 2003 down from 40 in Q2 2002 representing a 70 per cent drop.

Prior to the onset of COVID-19, the global economy was already facing significant headwinds, resulting from:

  • Political instability and the upcoming elections in the US
  • Continuing political and trade tensions between the US, EU and China
  • Upheaval in global oil markets
  • A lack of clarity over BREXIT

All seem like permanent features over recent years in pieces like this. COVID-19 has impacted a global economy already beset with challenges.

So, where do we go from here? Much depends on two factors that will play out over the rest of the year. Firstly, will we encounter a second wave of COVID-19 infections? How will the government respond, and will their plans for a more localised response prove effective? A second wave requiring a national lockdown would prove a significant knock to confidence and test the ability of government to maintain the level of support it has provided thus far.

Secondly, how will employers respond to the removal of government support in the form of the various furlough schemes? Some predictions estimate that UK unemployment levels could exceed 11 per cent, levels last seen in the early 1980s.

Despite all the gloom, the experience of 2009 to 2012 shows that we can recover from the deepest of recessions and, in contrast to the global financial crisis, the strength of the financial sector will hopefully enable a rapid recovery from the worst effects of the pandemic. The government has already broken the mould with its response to COVID-19 and unprecedented government action can be expected to assist further.