European stock universe still dries up by the bottom, warns LFDE
French asset manager La Financière de l’Echiquier (LFDE) together with research center MiddleNext have released their third consecutive study on the universe of European small and mid cap stocks.
The research has found out that between 2007 and 2016, the overall number of companies listed on European stock exchanges has decreased by 13% to 5,498 from 6,349 firms. For the European small cap segment alone, the drop rate amounts to 20% over the same period.
A peak was reached in 2013 when European stock exchanges tallied 5,395 stocks. Since 2013, the number slightly recovered but not all segments have benefited from this improvement.
Nano and micro caps segments have seen their number of stocks decreasing by 9% and 2% between 2013 and 2016 respectively whilst main beneficiaries of the recovery were small (16%), mid (14%), large (+23%) and blue chips (+15%).
But in 2016, following a two-year recovery period, the global number of stocks listed on European stock exchanges has dropped again as the number of delisted companies is not covered by the number of new entrants.
For instance. some 299 micro-cap companies have had an IPO in 2016 but at the same time, some 320 others were withdrawn from European stock exchanges.
Another finding of LFDE and Middlenext’s study is that one in four companies listed in 2006 have joined an upper segment (nano to micro, micro to small, small to mid, mid to large, large to blue chip) over a ten-year period.
But the process is directly threatened by the drying-up of the stock exchange ecosystem.
On a country basis, France, Germany and the United Kingdom remain among the most impacted by the drop in the number of stocks whereas markets such as Sweden have seen their number of listed firms rising over the last ten years (74% for Sweden between 2007 and 2016).
LFDE’s chairman and CEO Didier Le Menestrel said that the stock drying trends seen across European stock exchanges must be treated as a real concern.
He added the process could be reversed by implementing measures such as these taken in Sweden or Italy to boost investments in local small-mid caps.
Le Menestrel plaids for a European framework on listed stocks investments that would be benefit to both investors and the European financial ecosystem.
Caroline Weber, CEO of MiddleNext, warned that the application of Mifid II will result in a drastic reduction of the research offering focusing on small caps.
“Without the support of research, the pool of European small caps may dry up even faster. There is a vital issue for young French companies on which the whole ecosystem relies on. Stabilising regulation and making it favourable to small companies remains crucial,” said Weber.
To read more about the study (in French), click here.