The decline of US stocks

By Felix Salmon
May 26, 2011
Aaron Lucchetti takes a detailed look at the US decline in global stock-market listings today, and finds a bunch of US companies deciding to list overseas:

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Aaron Lucchetti takes a detailed look at the US decline in global stock-market listings today, and finds a bunch of US companies deciding to list overseas:

In all, 74 U.S. companies have done IPOs in foreign countries since 2005, raising about $13.1 billion, according to Dealogic. That is a small fraction of the more than 650 U.S. companies that have gone public on U.S. exchanges since 2005. Still, such capital raising abroad was much less common before.

The numbers here seem high to me: if you’re a US company which has gone public since 2005, there’s a greater than 1-in-10 chance that you’re listed overseas. 74 companies is a lot of companies: we’re clearly not talking about one or two exceptions here. And if you look at the example given in Lucchetti’s piece, the Seattle-based but London-listed water-purification company HaloSource, there’s no obvious reason to discount it as some unique outlier.

I would love to see a quantitative comparison here, however, rather than the qualitative “much less common.” Did some small but significant proportion of US companies always list abroad? I guess what I’d really like to see here is a chart of the ratio of foreign IPOs to domestic ones, for US companies, on say a rolling five-year basis, going back as far as there’s data. Does the current level around 10% constitute a big spike upwards?

What seems certain is that the US stock markets just aren’t particularly interesting when it comes to new listings any more. LinkedIn made a big splash, yes, but mostly just because of its huge opening-day pop. And it wasn’t even the biggest IPO last week — Glencore raised much more money, has a much higher valuation, and chose to list in London and Hong Kong. And as Bob Greifeld noted when he announced Nasdaq’s bid for the NYSE, In 2010 the US generated only 16% of the capital raised worldwide and attracted only one of the 10 largest global IPOs.

Meanwhile, this week’s big share offering — of AIG — is looking decidedly sluggish, as though the US stock market really isn’t capable of digesting such things. (To be fair, the syndrome is global: the same thing seems to be happening to Glencore as well.)

Lucchetti waves his hand vaguely at the economic implications of all this, quoting a venture capitalist as saying that “we’re losing the ecosystem that has helped buoy the US economy over decades.” But a venture capitalist would say that — she just wants as many ways to exit as possible.

The more immediate implication, I think, is for individual investors. Even today, most US investors think of stocks in terms of US listings and tickers; if you watch CNBC all day, you could be forgiven for thinking that nothing matters unless it has a US ticker. But realistically, anybody investing in equities over a long-term time horizon is going to have to have a comprehensively global outlook. And while millions of investors still get their hands dirty with individual US stocks, buying this one rather than that one, trying to do anything remotely similar with global stocks is a non-starter. Just buying them is hard enough; doing real homework on them and picking between them is almost impossible, given the huge size of the global stock-market universe.

As a result, investing is going to have to become much more index-driven than it is right now, dominated by top-down global asset-allocation decisions rather than bottom-up stock-picking. And that in turn is going to drive correlations higher and increase the amount of systemic risk in global markets. I also suspect that the decline in US listings presages a relative decline in US markets. As US investors begin their exodus out of domestic stocks and into global stocks, the US stock market is likely to underperform its foreign counterparts. As they say, follow the money. It’s not here, any more. It’s there.


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There was a time (and not that long ago) when equity and debt capital market access was simply no available outside the US for smaller firms and so it made sense to list in the US – even for non-US firms. The big change is that now it is possible to raise ¬£bn in London, Frankfurt, Sao Paulo, HK, etc… So it’s really a story of rest of world capital markets striving to catch-up with the US, both in terms of market structure, regulations etc and so companies simply have more options on where to list than they ever had in the past. And so things like listing costs and say SarBox can be enough to discourage from listing in the US – and the historical benefit and kudos from listing on NYSE is less valuable than it was. (notice many non US firms have now delisted their secondary listings from NYSE too – it used to be about prestige and capital access; but if you can get capital in your home market, then the value of prestige become much more questionable)
Then there’s the fact that many IPOs are in the commodities/mining/metals sector and there, London has made itself the center of that world, so just like it make sense for Linked-in to go with its peers on Nasdaq, it does for many Commods/O&G etc… to list in London.

The last point though is v interesting – more index investing. This ought to be a good thing really, as that should mean investors would get better value for money. but yet, it seems managers have had a lot of success selling active global funds rather than trackers on say the FTSE All world. So I’d reckon the higher correlations will take a while to materialise. (though to be clear – in times of panic, all asset classes tend to correlate – but I guess we have to accept those are not “normal” market conditions and hopefully, we’ll return to “normal” conditions soon.)

Posted by fxtrader14 | Report as abusive

The US markets will underperform their foreign counterparts because most of the listed firms still depend on the US economy for profits, and the US economy will be weak for some time.

Follow the money? Yes, it left the U.S. because we have been running massive trade deficits for decades, which are offset by ships full of cash leaving the country, or debt accumulating to foreigners. It should be no surprise that the percentage of new listings are foreign, what should be a surprise is that so many are still here in the U.S.

Posted by KenG_CA | Report as abusive

What about reverse IPOs? Hundreds of Chinese companies have ‘gone public’ in the US in this way in recent years.

Posted by DanHess | Report as abusive