Global tensions while the UK teeters on the edge of the Brexit cliff

Jordan Anderson - Manager, Capital Markets, Link Group
29 July 2019

In the second quarter of 2019 AIM saw four new companies come to market, with a total market cap of £508m, the largest of which was Loungers Plc with a market cap on admission of £198.1m. This figure marks a contrast to the same period last year in which 16 companies joined AIM, with an aggregate market cap of £1.7bn. New money raised on AIM in Q2 2019 came in at £194.1m compared to £456m in Q2 2018. On the flip side, there was a total of 13 AIM cancellations in Q2 2019, taking the number of companies on AIM to 900 with a combined market value of £100.2bn. The number of companies listed on AIM peaked in 2007 at 1,694 but there has been a consistent year-on-year decline in the number of companies on AIM to the tune of 53.13% from 2007 to 2019.

These figures echo the sentiment of a lower level of interest from investors on AIM and internationally, linked to an uncertain political backdrop, including the extended Brexit deadline, the Tory leadership race, the impending vacancy as Governor of the Bank of England and trade tensions between the EU, US and China.

Across the pond, turbulent Sino-US relations continue to send ripples throughout the global markets, with Donald Trump and Xi Jinping still locking horns over $250bn worth of tariffs imposed during the course of 2018. The stalemate between the world’s two economic powerhouses have piled pressure on Chinese policymakers to increase monetary easing efforts, particularly considering the GDP figures for Q2 which is the weakest pace of growth experienced in over 30 years. Added to which, the trade gap between the US and the rest of the world widened to $621bn, marking a 10-year high. The current geopolitical and economic turmoil has proved sufficient to deter new companies from coming to market, with investors holding fire on deploying capital pending a more stable outlook in the UK and global economy, culminating in the cancellation of ReAssure Group’s £3.3bn London IPO plans due to “heightened caution and weak underlying demand”.

Shifting focus to the global landscape, proceeds for listings in the first half of 2019 are at a three-year low of £50bn against £73.3bn logged in the first half of 2018, so it is apparent that weaker investor demand is not a problem the UK is facing in isolation. AB InBev abandoned what was expected to be the largest IPO of 2019 (the Hong Kong listing of its subsidiary, Budweiser Brewing Company APAC Ltd, with an estimated value of $10bn), which was pulled in July due to “prevailing market conditions”. Virgin Trains USA also shelved its IPO earlier in 2019 due to the availability of more lucrative alternate funding options, however, Virgin Galactic have announced their intent to list in New York.

Irrespective of softer figures on a comparative basis, it is not all doom and gloom for the UK and the LSE, across AIM and the Main Market; they led the way for EMEA stock exchanges in the first half of 2019, drawing in listings with a total market cap of £8.43bn across 19 IPOs. This was mainly driven by the top three listings in the first half of the year: Network International (£2.6bn) Trainline (£2bn) and Finablr (£1.2bn) which further embeds the notion of the UK retaining its status as Europe’s hub for EMEA listings.

Looking forward, Brexit will continue to dampen enthusiasm for new listings at least until the current deadline of 31st October, however, given the current parliamentary arithmetic it is difficult to see how the UK avoids a further extension unless Boris Johnson stays true to his word and forces a hard Brexit, which will obviously have its own negative effects. Given the interplay of the traditional IPO windows and the timing of the next Brexit cliff edge, it is becoming increasingly difficult to see how a large number of IPOs will get done this year. Onwards to 2020!

Jordan Anderson
Manager, Capital Markets, Link Group

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