2019 IPOs Fall Flat, China Gooses Economy, Home Borrowing Up
In today’s Steady Investor, we look at what is going on in the markets and our key takeaways and questions for investors to consider, such as:
- Looking back at 2019, the year of failed IPOs. What happened?
- China kicks off 2020 with signs of stimulus
- Americans are taking cash out of their homes, at what cost?
A Year of Failed IPOs — At the outset of 2019, many investors and fast-growing corporations were excited about the year of IPOs ahead. Baseline expectations were that 2019 would eclipse 1999 as the best year for IPOs raising money in the public markets, which would have meant generating more than $108 billion. But 2019 fell woefully short of that mark, with 211 companies raising just $62.33 billion. Some of the shortfall came from issues out of corporations’ control – the government shutdown at the turn of the year led to filing delays for many. But a more compelling reason for the shortfall, in our view, was growing investor concern over frothy valuations, high growth companies with no profits, and management teams that were unproven and lacked experience. Companies like Uber, Lyft, Pinterest, and Slack all had high hopes, name recognition, and fast growth rates, but many investors who got in early are still underwater on their investment. According to Dealogic, shares of companies that went public this year are trading about 23% above their IPO prices, which lagged the S&P 500’s near 30% rise on the year. Isolating only tech companies makes the field of IPOs look worse, with just an 8% gain compared to the Nasdaq’s close to 35% gain.1
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China Starts 2020 With Signals of Stimulus – Coming off a minor breakthrough with Phase 1 of a trade deal with the United States, the People’s Bank of China (PBOC) announced at the turn of the year that they are tilting even further towards easy money. Last week, the PBOC said it would lower reserve requirements at commercial banks by 0.5%, meaning that approximately $115 billion would be released into the financial system. Liquidity in China’s financial system tends to get tight around the Lunar New Year, but this is also a signal that China remains committed to goosing economic growth particularly as the trade war enters a make-or-break phase. China has also signaled an understanding that it can no longer rely on foreign investment and exports that have maintained high levels of economic growth for the past decade and beyond, as countries grow more protectionist and as the U.S. becomes are more aggressive trading partner.3
Americans are Binging on Home Equity Lines of Credit, Again – With the housing market remaining fairly strong and Americans continually financing lifestyle with debt, house refinancings are on the rise. According to mortgage-data firm Black Knight, nearly 60% of 2018 refinancings came at higher interest rates – the biggest share since before the financial crisis. Homeowners are taking out money at rates and at a pace much higher than the average from 2009 to 2017. While some are using the cash for investments or property renovations – which can increase property values – many are using the money to pay off credit cards, swapping one type of debt for another.4
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2020, I recommend focusing on your long-term financial goals. To help you do
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2 ZIM may amend or rescind the “7 Secrets to Building the Ultimate DIY Retirement Portfolio” guide for any reason and at ZIM’s discretion.
3 The Wall Street Journal, January 2, 2020. https://www.wsj.com/articles/global-stocks-launch-higher-after-chinese-easing-move-11577960257?mod=hp_lead_pos1
4 The Wall Street Journal, December 29, 2019. https://www.wsj.com/articles/americans-are-taking-cash-out-of-their-homesand-it-is-costing-them-11577529000?mod=djem10point
5 ZIM may amend or rescind the “7 Secrets to Building the Ultimate DIY Retirement Portfolio” guide for any reason and at ZIM’s discretion.
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