In a report published this week, the UK’s top fund managers have raised concerns that the forthcoming General Election, coupled with economic uncertainty in both the Eurozone and in China, could cause a continued volatile market in 2015.
The Quoted Companies Alliance (QCA) and Baker Tilly Small and Mid-Cap Investors Survey 2015, interviewed some of the UK’s leading small and mid-cap institutional fund managers about their outlook for businesses over the coming year.
As well as the General Election in May, the fund managers raised concerns as to where cash inflows would come from in 2015 in order for mid-cap quoted companies to continue to grow.
Most of them expected that there would be a decline of companies seeking to IPO this year, and that this was largely due to macroeconomic and political uncertainty.
The fund managers were also concerned that many investors – particularly those managing large cap funds – were becoming increasingly risk averse as a result of the attitude and action of regulators.
Many felt that investors were being discouraged from investing in small and mid-cap companies due to the perception that they were ‘risky’ investments, and that this could see some investors exit the small and mid-cap space altogether, making funding and liquidity even harder to gain in 2015.
However despite these concerns, the managers said they expected small and mid-cap companies to perform well in 2015, with some forecasting that small companies would see real improvements in corporate valuations.
Many of the fund managers also said that the quality of IPOs had improved recently, partly because the pricing has become more realistic, and that they believed that businesses that could generate value through positive cash flows would continue to attract investment in 2015.
Jim Whittaker, corporate finance partner at Baker Tilly’s office in Leeds, said: “Initial expectations of a record high for equities in 2014 faded in the autumn as sentiment turned more negative.
“It is likely that the market will remain volatile in the coming months on the back of political uncertainty at home and continued risks to the global recovery abroad.
“However, the Yorkshire economy tends to mirror the UK as a whole, and we expect that the recent collapse in the price of oil will provide a short term shot in the arm to UK consumers, as well as reducing costs for corporates.
“My advice to companies based in the region who are contemplating an IPO despite such an uncertain backdrop should take comfort from many newly listed Yorkshire plcs such as Safestyle and Clipper Logistics who have largely bucked the market since listing.
“Realistic valuations and robust fundamentals such as strong management and cash flows typically prevail.”
Tim Ward, chief executive of the Quoted Companies Alliance, said: “Investors who take a long-term view will benefit from the current market uncertainty.
“Compared with strong management, a good business model and positive cash flows will be the main beneficiary of this long-term money.”