'The quality isn't there': investors lose faith in AIM

The Alternative Investment Market has come under fresh attack from investors, just days after new regulations were unveiled to imrove the fortunes of the London Stock Exchange's ailing market for smaller companies.

"This is shutting the stable door after the horse has bolted," said Andy Smith, a fund manager at SV Life Sciences, which concentrates on biotechnology stocks. "Investors are participating in a bloodbath waiting to happen."

The LSE published new guidelines last week for nominated advisers - the brokers that take companies public on AIM. The rules are intended to make corporate advisers more accountable for the companies they float. The regulations were unveiled amid concerns over the quality of companies listed on the market.

"We will always seek to maintain a balance between the needs and interests of investors and the needs and interests of companies. It's a delicate line to walk," said an LSE spokesman. "We think it's a suitable model for a growth market like AIM."

Since the market correction in May, the FTSE All Share index has recovered to within a percentage point. The FTSE AIM index, however, has lost nearly a quarter of its value. An investor shift to safer stocks can only partly explain the downturn.

"There have been a lot of new issues, which is great for the UK markets. But when you have that level of supply, it dampens performance overall," said Catherine Stanley at fund manager F&C. "Investors just can't take all that supply. There is a greater sense of caution."

The number of companies listed on the exchange has doubled to nearly 1,600 in the past three years. Many of the companies that have floated have come from risky or cyclical sectors such as mining, resources and biotechnology. "The quality just isn't there," said one market source speaking on condition of anonymity. "You'll find that investors are deserting AIM."