Discussion 3 - FIN6644 global financial strategy

IPOs' Big Year Ends Low With 11th-Hour Selloff -- - Two-thirds now trade below debut price as looming rate increases give investors pause Driebusch, Corrie; Santilli, Peter

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FULL TEXT Looming behind a record-breaking run for IPOs in 2021 is a darker truth: After a selloff in high-growth stocks during

the waning days of the year, two-thirds of the companies that went public in the U.S. this year are now trading

below their IPO prices.

Traditional initial public offerings raised more money than ever before in 2021, as startup founders and early

investors tried to cash in on sky-high valuations. In the first eight months of the year, IPO shares rose. In

November, 2021's class of IPOs were trading up 12% on average, according to Dealogic. By late December, they

traded 9% below their IPO prices.

The IPO market, full of volatility and companies of all shapes and sizes, is hard to track as a whole. So The Wall

Street Journal plotted every traditional IPO of 2021 and mapped out how they performed for the entire year to

illustrate what happened with the market.

The data show a dramatic slide, sparked by investor fears that planned interest-rate rises could curb the appetite

for riskier assets. The list of companies trading below their IPO price includes the buzzed-about firms like

Robinhood Markets Inc., Swedish oat-milk maker Oatly Group AB, South Korean e-commerce giant Coupang Inc.

and Chinese ride-hailing company Didi Global Inc.

In July, Robinhood made a bid to revolutionize the IPO, opening up its offering to many of the trading platform's

own customers. Since its debut, the stock's performance has been choppy. Initially, shares fell, then soared higher.

The stock now trades more than 50% below its $38 IPO price, dealing a blow to those everyday investors who

bought into the deal and held on to their shares.

Days after Didi listed its stock in the U.S., Beijing put the company under a cybersecurity review and banned it from

accepting new users, crimping its growth possibilities. The stock cratered and now trades at $4.94, far below its

$14 IPO price. This month, Didi said it planned to delist its shares from the New York Stock Exchange.

In the fall, as IPOs' stock performance waned, several companies postponed their IPOs, but the biggest deal of the

year forged ahead. Amazon-backed electric-vehicle startup Rivian Automotive Inc. launched its offering to hot

demand, pricing its IPO at $78 a share, far above its original targeted range. The stock jumped in its debut, and

though it has fallen since, it remains more than 25% above its IPO price.

Investors, bankers and traders said there are two main culprits for IPOs' slide into the end of the year.

On the heels of soaring inflation, central banks signaled they will raise interest rates next year, prompting a broad

selloff in technology stocks. The allure of many IPOs is that the companies can one day deliver big profits. But

they also could flop.

Higher available interest rates change the opportunity-cost calculus for investors who are betting on growth

companies' profits far into the future. When rates are near zero, it might make more sense to pay a premium for the

potential of big future returns. When rates rise, the proposition becomes less appealing.

Another drag on 2021 IPO performance is the unprecedented supply of IPOs flooding the market and increased

interest and participation by individual investors.

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Nearly 400 traditional IPOs -- along with an additional 600 special-purpose acquisition company launches --

inundated fund managers and analysts this year, with many saying not a day went by without a formal call or

pitch.

"While it's a boon for the bankers to have a record number of IPOs, it's an environment to tread very cautiously as

an investor," said Denny Fish, portfolio manager at Janus Henderson Investors. The $7.2 billion Janus Henderson

Global Technology and Innovation Fund that Mr. Fish manages bought shares of Toast Inc. and GitLab Inc. in their

2021 IPOs. Toast has fallen 7% from its IPO while GitLab is up more than 15%.

Investors, bankers and executives said the market's reaction has caused them to rethink what makes an IPO a

success. It also has introduced a possible speed bump after a spectacular year and a half for companies going

public.

The pipeline is strong for 2022 IPOs, with more than 900 private companies globally that are worth $1 billion or

more. Several companies looking at early 2022 stock-market debuts are re-evaluating the price they are trying to

fetch, but few are abandoning their plans to launch, lawyers and bankers said.

"None of the companies we're working with have gone pencils down," said Josh Bonnie, co-head of Simpson

Thacher &Bartlett LLP's Global Capital Markets Practice.

Some large investors said they prefer more muted IPO performance in the early days of a company's debut.

Portfolio managers at big funds tend to receive fewer shares than they desire in an IPO, and to build up their

position they need to buy more stock in the early weeks and months following the IPO. If the stock doubles right

out of the gate, that becomes harder to do.

But big pops and solid performance help pull companies and investors into IPOs. When that is replaced by a

downdraft in IPO stocks, it may cause a chill going forward.

"When deals haven't been profitable for investors, naturally they're going to be more skeptical of the next deal,"

said Daniel Burton-Morgan, head of Americas Equity Capital Markets syndicate at Bank of America Corp.

---

Mike DeStefano contributed to this article.

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Enlarge this image.

Credit: By Corrie Driebusch and Peter Santilli

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DETAILS

Subject: Stock exchanges; Growth stocks; Initial public offerings; Investments; Interest rates;

Corporate profits; Startups; Capital markets

Business indexing term: Subject: Stock exchanges Growth stocks Initial public offerings Interest rates

Corporate profits Startups Capital markets; Corporation: Janus Henderson Group plc;

Industry: 52321 : Securities and Commodity Exchanges

Location: United States--US

Company / organization: Name: Janus Henderson Group plc; NAICS: 523150

Classification: 52321: Securities and Commodity Exchanges

Publication title: Wall Street Journal, Eastern edition; New York, N.Y.

First page: A.1

Publication year: 2021

Publication date: Dec 30, 2021

Publisher: Dow Jones &Company Inc.

Place of publication: New York, N.Y.

Country of publication: United States, New York, N.Y.

Publication subject: Business And Economics--Banking And Finance

ISSN: 00999660

Source type: Newspaper

Language of publication: English

Document type: News

ProQuest document ID: 2615233740

Document URL: https://www.proquest.com/newspapers/ipos-big-year-ends-low-with-11th-hour-

selloff-two/docview/2615233740/se-2?accountid=10901

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Last updated: 2022-10-16

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Bonds: Foreign Bonds Lose Appeal --- Japanese, eurozone investors are selling more global bonds than they are buying Bird, Mike . Wall Street Journal , Eastern edition; New York, N.Y. [New York, N.Y]04 Feb 2017: B.9.

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ABSTRACT  

Hedging an investment mutes its impact on the exchange rate, but if Japanese and European investors want to

benefit from higher yields on bonds elsewhere in the world -- particularly U.S. Treasurys -- they would have to buy

more bonds unhedged against currency risk.

FULL TEXT  

After years of splurging on international debt, the world's two large economies with negative interest-rate policies

are showing tentative signs of losing their appetite for foreign bonds.

Investors in Japan and the eurozone have both recently sold more global bonds than they have bought. That

comes after years of snapping up foreign debt, as negative central-bank interest rates at home sent money abroad

in search of higher returns.

How that trend develops will have a significant impact on international markets, particularly in foreign exchange

and fixed income.

Data from Japan's Ministry of Finance confirmed this past week that Japanese investors sold around 1.3 trillion

yen ($11.52 billion) in foreign bonds between Jan. 21 and Jan. 28, taking net sales for the past 12 weeks to more

than 3.7 trillion yen, the largest amount since April 2014.

Investors in the eurozone, for which data is more delayed, sold 15.99 billion euros ($17.2 billion) more in foreign

bonds than they bought in the three months through November, becoming net sellers for the first time since 2012.

The reversal is a puzzle for international markets, since the spread between U.S. bond yields and yields in the

eurozone and Japan has only grown -- which should make American debt more attractive to global investors.

However, many investors, especially risk-sensitive buyers such as pension funds and insurance companies, want

to hedge their exposure to currency movements. And high global demand for U.S. debt has raised the cost of

hedging to borrow in dollars. That cost heavily reduces the benefit of buying Treasurys for both European and

Japanese buyers.

"For bond-market investors, one of the key things you need to bear in mind is the volatility of exchange rates," said

Mika Inkinen, analyst at J.P. Morgan. "It's not enough to just look at the yield differential, you need to look at what's

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happened to the cross-currency basis."

One hedging tool, cross-currency basis swaps, allows an investor to swap cash flows in one currency for cash

flows in another. But for a buyer with euros, the costs of such swaps have widened markedly over recent years.

At the end of January, a 10-year U.S. bond yielded around 2 percentage points more than its German equivalent

and 2.4 percentage points more than a Japanese bond.

But if investors fully hedged themselves against currency exposure, the pickup in yield would disappear

completely. After that cost, a U.S. 10-year bond would offer a yield 0.06 percentage point lower than a domestic

equivalent for an investor with euros, and 0.7 percentage point lower for a Japanese investor.

"The relative attractiveness hasn't increased as much as the nominal difference in yields suggests," added Mr.

Inkinen.

Hedging an investment mutes its impact on the exchange rate, but if Japanese and European investors want to

benefit from higher yields on bonds elsewhere in the world -- particularly U.S. Treasurys -- they would have to buy

more bonds unhedged against currency risk.

So how large an impact global flows have on the dollar from now on depends on whether investors will hedge their

currency exposure.

If a Japanese or European investor buys a U.S. Treasury bill and fully hedges, the impact on the exchange rate will

be much more muted. But if investors continue buying U.S. bonds, and stop hedging, the demand for dollar-

denominated debt could fuel a rally in the U.S. currency.

"Foreign buying of U.S. credit has been a key, and growing, source of demand ever since the 'taper tantrum' set in

motion increasing divergence between U.S. and foreign monetary policies," wrote Nathaniel Rosenbaum, credit

strategist at Wells Fargo in a recent research note. (The taper tantrum was when U.S. bond yields briefly surged in

2013 after Federal Reserve officials signaled they would soon end stimulus.)

That demand has reduced U.S. yields, too. According to analysis by Morgan Stanley strategists, yields on U.S. 10-

year Treasurys are around half a percentage point lower than would be expected to be based on normal

macroeconomic factors.

Recent growth figures show the eurozone's economic expansion in line with that of the U.S. in 2016. A pickup in

growth in Europe could be another factor making international debt less appealing to local investors.

"In that event, the euro's decline could eventually come to an end versus the greenback," said Mr. Rosenbaum. "We

could see a sharp pullback or even a reversal in European demand for American corporate bonds."

Credit: By Mike Bird

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Subject: International finance; Treasuries; Bond markets; Foreign investment

Publication title: Wall Street Journal, Eastern edition; New York, N.Y.

Pages: B.9

Publication year: 2017

Publication date: Feb 4, 2017

Publisher: Dow Jones &Company Inc

Place of publication: New York, N.Y.

Country of publication: United States, New York, N.Y.

Publication subject: Business And Economics--Banking And Finance

ISSN: 00999660

Source type: Newspapers

Language of publication: Englis h

Document type: News

ProQuest document ID: 1864829790

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ccountid=10901

Copyright: (c) 2017 Dow Jones &Company, Inc. Reproduced with permission of copyright owner.

Further reproduction or distribution is prohibited without permission.

Last updated: 2017-11-24

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