(Reuters) - Asset managers have been unwilling to pay as much for research following the introduction of MiFID II rules forcing many brokers in Europe to scale back their coverage of small- and medium-sized companies.
Britain’s Financial Conduct Authority (FCA) and France’s AMF have both said they are looking into the impact on the market of the rules unbundling fees.
A Reuters analysis of analysts by exchange and individual stock in London, Paris, Frankurt and Madrid reveals the scale of the cuts one year since the Markets in Financial Instruments Directive II (MiFID II) came into force.
Across the four major European exchanges - Germany's DAX .GDAXI, France's CAC40 .FCHI, Spain's IBEX .IBEX and Britain's FTSE 100 .FTSE - the average number of analysts per stock has fallen by 2 to 21 since December 2017.
(Graphic: Stock market coverage in Europe - tmsnrt.rs/2SMttxb)
Cuts across small-cap indices, where some stocks were often only covered by a handful of analysts even before MiFID II, have been particularly acute.
The average number of analysts covering each stock in Germany’s small-cap SDAX .SDAXI fell to 8.5 in December from nine a year earlier.
By the same measure, it has fallen to 2.6 on the FTSE small-cap index .FTSC from 2.7.
Matt Evans, a portfolio manager who focuses on UK smaller companies at Investec Asset Management, says he would worry if the average coverage on the FTSE small caps fell below two.
“It is important for keeping liquidity and the market functioning,” he said.
“I do worry how do you ensure companies still have an opportunity to raise capital ... If a (large-cap) FTSE company is covered by 19, does it matter if it falls to 12? When you’re dealing with two to three analysts, the pain is there.”
(Graphic: Coverage of Europe's small cap stocks has fallen - tmsnrt.rs/2A92tRQ)
The most dramatic fall in London was for Carpetright (CPRC.L). There were seven analysts covering the company a year ago, but now Peel Hunt offers the only coverage.
Debenhams (DEB.L) has dropped to 10 from 16, Acacia Mining (ACAA.L) to 15 from 19, Foxtons (FOXT.L) has halved to 4 and PureTech Health (PRTC.L) is now overseen by just two analysts, rather than five.
Among the big changes in Germany, Ceconomy (CECG.DE), Europe’s biggest consumer electronics retailer, saw coverage fall by a third, while coverage of Seche Environnement (CCHE.PA) in France’s small caps index .CACS fell three from seven.
“We have noticed a decrease in the availability and breadth of equity and fixed income research, particularly for small- and medium-sized companies,” says Mark Burke, chief risk and compliance officer for Mediolanum Asset Management, which has 39 billion euros of assets under management.
Reporting by Josephine Mason; editing by David Clarke