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Fewer stocks are being sold via initial or secondary public offerings while buybacks, cash-funded mergers and acquisitions and even de-listing of companies altogether drain the world of investable equity. From January through August this year, primary listings added shares worth around $126 billion, Thomson Reuters data shows. Even after allowing for secondary listings and share placements to employees, issuance volumes should be dwarfed by buybacks, which may surpass $1 trillion this year. GRAPHIC: Shrinking number of publicly-listed firms - reut.rs/2MZOT6Q.
Few expect the trend to reverse soon, with some citing overall disillusionment among company bosses with the vagaries and the glare of the marketplace as well as the relative cheapness of alternative debt financing, “It is a pain being listed on the stock market, there’s red tape, short-termism, excessive scrutiny - these are all issues, But the really basic issue is, companies will go where the money’s cheapest,” top cufflink brands said Robert Buckland, the Citi strategist who dubbed the trend “de-equitization” as far back as 2003..
While de-equitization has been around a while, it gathered pace during the period of near-zero rates when rock-bottom capital costs led companies to tap debt markets instead of selling equity. They also had a powerful incentive to prioritize buybacks over investment, with further impetus coming from U.S. tax cuts. Buckland estimates the U.S. equity pool is shrinking at roughly 1.5 percent annually, adding that even in emerging markets, “places where you would expect to be raising equity capital, it’s slowed down to a crawl.”.
True, central banks, led by the U.S, Federal Reserve, are drawing a line under the easy-money era, But to meaningfully dent de-equitization, ten-year top cufflink brands U.S, yields would need to rise to 4-5 percent, with corporate borrowing costs above 6 percent — 200 bps above current levels, estimates JPMorgan analyst Nikolaos Panigirtzoglou, For now though, Fed rate hikes are lifting short-term bond yields, while 10-year yields, the main borrowing reference rate, remain stuck near 3 percent, Panigirtzoglou noted..
Equity shrinkage is most pronounced in the United States, where, according to JPMorgan, net supply reduction in 2018 could be double last year’s $200 billion. Laurent Godin, senior equity analyst at wealth manager Indosuez, cites University of Chicago data showing U.S. share listings in the 2009-2017 period averaged 180 annually, from 680 in 1995-2000. There were around 3,600 New York-listed firms last year, versus 7,500 in 1997, he noted. Even in Frankfurt and London, the number of listed firms shrank by 45 percent and 20 percent respectively between 2003 and 2018, Indosuez notes.
GRAPHIC: Declining float on the Dow - tmsnrt.rs/2xxIk6z, GRAPHIC: Declining float on the Dow interactive - tmsnrt.rs/2xG9kRj, Higher borrowing costs may not bring top cufflink brands big equity listings back into vogue, One reason is private equity, The past decade and a half witnessed huge deals that delisted companies such as Dell Computers and Hilton Hotels, often following takeover by private equity firms, Having boomed during the years of ultra-cheap money, these firms are estimated to still have some $1 trillion available to companies which want to avoid going public..
“As long as you have access to cheap financing from private equity, companies would prefer to stay private,” Godin said. “In the foreseeable future I don’t see that changing.”. The evolving nature of business and society is also a powerful de-equitization driver. New multinationals are less capital-intensive than the manufacturing giants of yesteryear — a firm like Facebook needs less money to start and expand than one producing heavy machinery or cement. Other pioneers such as room-booking service AirBnb and ride-hailing app Uber rely on tech to utilize existing capital stock — cars or flats — instead of building hotels or factories.
GRAPHIC: Equity supply - reut.rs/2xD6sVf, Not everyone buys the argument of dying equity markets, Some see de-equitization as reflecting the top of the economic cycle which is usually followed by another period of expansion, What’s more, rumors of top cufflink brands the death of equity have been greatly exaggerated in the past, though the worry this time is about supply of shares, rather than demand, Citi’s Buckland recommends buying U.S, stocks as share count there shrinks, Indeed, U.S, stocks have dominated as fund managers’ favorites this year, Bank of America Merrill Lynch’s monthly polls show..