Originally I wanted to comment on the IPO of Chinese company Ant Group. Just a week ago, it seemed that a new record would be set, or rather a number of new records. Ant, the fintech group owned by Chinese billionaire Jack Ma, announced that on November 5th its shares would start trading on the Shanghai and Hong Kong stock exchanges, where it had decided to launch the largest IPO of all time and collect U$ 34.4 billion from investors.
By doing so it would have broken the record not only of its parent company, Alibaba Group, which in its 2014 IPO issued shares worth U$ 25 billion, but also that of last year’s debut by Saudi Arabia’s state-owned petroleum conglomerate, Saudi Aramco, in the amount of $ 29.4 billion. Jack Ma even boasted that all this could be done entirely outside the traditional global IPO centres of London and New York, as the first gigantic IPO listed only in China.
For a while it looked like further proof of China’s growing self-confidence and commercial dominance, like confirmation of how much China has consolidated its global position during the continuing Covid-19 pandemic. Ant planned to issue half on each exchange, i.e. $ 17.2 billion, at a price of 68.8 yuan and 80 Hong Kong dollars, and to potentially increase the size of the offering by another $ 5.2 billion in the event of high market demand. The market demand was truly huge, with not only Chinese retail investors but also foreign institutional ones fighting over allocations, and the emission was so massively underwritten that success was a foregone conclusion.
And then suddenly, at the last minute, founder Jack Ma and his management team were called to the carpet at the Shanghai stock exchange, and the entire IPO was stopped. Whether this will be for only 6 months, as the company hopes, or indefinitely, is hard to say.
The order came from the highest echelon, Chinese president Xi Jinping. As some analysts noted snidely, President Xi doesn’t like it when something is too beyond his ability to control it, and when he doesn’t understand something. So not one, but two reasons to stop, at least temporarily, the meteoric rise of Ant, a private company that started out processing payments for e-commerce giant Alibaba Group, but very quickly grew to be the largest financial services provider in China.
Over the course of a few years, Ant thus helped radically change not only how people in China pay for goods in the area of e-commerce, but also how they spend money in general, how they borrow and invest. Ant is now processing trillions of dollars in payments annually, running one of the largest global money market funds, and lends its own money and as an aggregator to millions of small customers and mid-sized and small companies.
What will come remains to be seen. But as for example Mikhail Khodorkovsky or Ye Jianming (the former CEO OF CEFC), nothing grows forever, especially not in autocracies…
… and from the world of autocracy to the world’s largest democracy, as the United States of America proudly calls itself. Since Tuesday of last week, the entire world waited an incredible five days for the results of the US presidential election. Everyone except for President Trump now know the result: in a battle of old men, 78-year-old Joe Biden defeated 74-year-old Donald Trump. Speculations have already surfaced that as a final gesture and repartee to Biden, Trump will announce his candidacy in the 2024 election. That is, if Don Junior or Ivanka don’t run in his place. Seriously.
But that remains to be seen. For now most of the world is rejoicing, and especially investors. The result of Tuesday’s US presidential election is “likely the best of both worlds for stock markets,” declared Marko Kolanovic, the Global Head of Macro Quantitative and Derivatives Strategy team at J.P. Morgan. Joe Biden’s election will most likely mean de-escalation of global trade wars (translated: conflict with China), which will help support global growth and the income and profits of companies (translated: US companies). What’s more, market volatility will evidently decrease, because investors won’t be rattled by daily unprecedented tweets by the US president.
At the same time, if the US Senate remains under Republican control, which is likely, the tax relief and de-regulation introduced by President Trump will remain in place. Exactly how the battle for the Senate will turn out, where the Democrats and Republicans still have 48 votes each (and where the Democrats need 50) will be decided on 5 January 2021 in another round of Senate elections for two seats in Georgia, where no candidate won the required majority.
But what’s already certain is that the expected “blue wave” in which the Democrats would win both the presidential post and control over US lawmakers in both chambers, has failed to materialize. While the Democrats did hold on to Congress (despite unexpected losses), the key upper chamber, the Senate, remains under the control of the majority leader, Republican Mitch McConnell.
Seventy-eight-year-old Moscow Mitch, as he has been nicknamed since last year thanks to his unflagging support for President Trump while he was being investigated and during a failed impeachment attempt, has already blocked Senator Elizabeth Warren from being named Treasury Secretary, and President Obama’s former national security adviser, Susan Rice, from being named Secretary of State. President Biden and the Democrats will therefore likely not succeed in naming their own cabinet as they would see fit.
So the markets can definitely start celebrating that the Democrats also won’t succeed in pushing through planned increases to corporate taxes and capital gains taxes. Investors who otherwise would have quickly sold growth shares ahead of tax increases can now breathe easy.
And finally, markets will, of course, go up because investors, mainly careful institutional investors, will continue to increase the weight of shares in their portfolios. That’s because institutional investors don’t like uncertainty, which it seems has decreased. Because institutional investors tended to adopt a wait-and-see attitude regarding investment into shares over the past few months, we can now look forward to large pension and insurance companies sending more money back to the market, and for prices to keep on increasing merrily.
Because Fed chair Jerome Powell takes Covid-19 seriously and is fairly generous, we can also look forward to incessant quantitative loosening of policy in all of the latest variations on the given theme. And all this will boost markets even if the Democrats fail to push through a Covid-19 relief package as extensive as the one they had planned after the election.
