AS the Alternative Investment Market (AIM) prepares to celebrate its tenth anniversary next month, figures show that its shares have surged by 76% over the past two years.

London’s junior stock market for small and growing businesses has left the main indexes in its wake during the recovery from the lows of March 2003. The FTSE Small Cap, the bottom 4% of the All-Share index, has climbed 43%; the FTSE Mid 250 has risen 49%; the FTSE 100 of Britain’s biggest stocks is up only 23%.

Firms have been rushing to float on AIM to take advantage of the boom, making it the most successful market for fledgling enterprises. In June 1995 AIM was served up to a sceptical public with just 10 companies worth £82m. Now 1,181 firms have quotes on the market, including household names such as Monsoon, Majestic Wine and Domino’s Pizza. Together they are worth more than £35 billion.

A sign of its growing credibility are plans by the FTSE Group to launch three new indexes tomorrow — the AIM 50, AIM 100 and AIM All-Share — to monitor its shares.

But as the market approaches its tenth anniversary there are worrying signs that the party may be over, for the time being at least.

Company bosses have been cashing in their shareholdings after the strong run. Directors have in-depth knowledge of their businesses, so investors track their moves closely as a sign of future trends.

There are a host of reasons why bosses might sell, other than a negative view of business conditions. They might cash in for tax reasons or because they want to pass wealth to family members. But when selling increases it is often a sign that share prices have peaked.

Over the past three months, directors of AIM firms have sold £34.5m of shares — nearly four times the £9.3m they bought.

If you take the number of deals, rather than the volume, there were 106 director sales in the first three months of this year, up almost a third on the same period in 2004.

Andy Yates of Digital Look, an investor website, said: “The AIM market has had a great ride, but the rush of directors selling could raise concerns that the bubble might burst.”

Other signals are increasingly negative. Analysts whose job it is to advise investors whether to buy or sell shares are turning bearish, and there are twice as many broker recommendations to sell AIM shares than to buy, according to Digital Look.

There are particular concerns about the bubble that has built up in oil, gas and mining companies. There has been a flood of new issues aiming to capitalise on high oil and commodity prices. Most have been lapped up by investors, even if some of the firms are of dubious quality.

Take oil explorer White Nile, whose shares surged from 10p to 137p after just four days’ trading in March, even though its rights to a piece of land in southern Sudan are disputed. Its shares are suspended pending an announcement.

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