London’s AIM market is now “quite dramatically oversold” and could be poised for a rebound in the second half of 2025, according to new research from boutique broker Turner Pope.
After enduring a bruising multi-year retreat, the junior index is trading almost 40% below its 10-year average and 60% below the FTSE All-Share on a relative basis.
The research argues that the worst may now be behind it. Liquidity is gradually improving, weaker companies have largely exited, and what remains is a smaller pool of better-managed businesses with valuable assets and global intellectual property.
Ripe for correction?
According to Turner Pope, AIM’s valuation gap is now “extraordinary” and ripe for a correction as economic conditions shift.
AIM was hit hard by a combination of factors following the pandemic peak in mid-2021: A generalised sell-off in growth stocks, a prolonged drought in IPO activity, and 42 consecutive months of outflows from UK equity funds, largely triggered by Brexit and inflation fears.
A halving of inheritance tax relief on AIM shares, effective from April 2026, also weighed heavily on investor sentiment.
But the winds of change may now be blowing in the right direction. Fund outflows from UK equities slowed in early 2025, while the FTSE 100’s discount to US and European peers is beginning to attract attention from global investors.
More importantly for AIM, the Bank of England is expected to lower interest rates through the rest of this year. Turner Pope cites Morgan Stanley’s forecast of up to five cuts in 2025, noting that AIM’s fortunes have historically tracked UK base rates closely.
Stark contraction
AIM’s contraction has been stark. At its peak, the index hosted nearly 1,700 companies; today, just 586 remain. Yet this “survivor cohort” now reflects a stronger mix of businesses with clearer paths to profitability and growth.
The current market climate, Turner Pope says, is increasingly favourable to companies with innovative solutions, particularly in sectors like life sciences, clean tech and digital infrastructure, many of which are well represented on AIM.
Political support could also help drive a turnaround. The Labour party is reportedly exploring reforms to pensions and ISAs that would direct capital into unlisted and small-cap stocks, with an eye on replicating Canada’s large-scale pension investment model.
Meanwhile, initiatives like the Mansion House Compact, which encourages major UK pension schemes to allocate 5% of their assets to private equity and early-stage companies, could bring much-needed liquidity back into the market.
M&A to pick up
M&A activity is also likely to pick up. Turner Pope points to research from Peel Hunt suggesting that up to a third of AIM-listed companies valued below £250 million are vulnerable to takeover approaches, given current depressed valuations.
The average bid premium for AIM takeovers in 2024 was 66%, highlighting the scale of the disconnect between market value and perceived business worth.
Finally, AIM’s limited exposure to Donald Trump’s new trade tariffs gives it an added edge. While global markets remain jittery over geopolitical and economic risks, AIM’s low direct sensitivity to US-China tensions and flexible cost base could make it a relatively safe haven among growth-oriented indices.
Sharp rebound
In Turner Pope’s view, the combination of reduced macro headwinds, improved stock quality, and the likelihood of lower rates presents a compelling opportunity.
“AIM now offers potential for a sharp rebound relative to the UK’s principal indices over the remainder of 2025,” the report concludes.
For investors hunting value in overlooked corners of the UK equity market, AIM may soon be back in favour.