LONDON: The coronavirus crisis is likely to reverse a decade-long trend of shrinking equity supply that helped to power the longest bull market in history as cash-strapped companies are forced to raise equity instead of buying back their shares.
He has calculated, based on a global share count proxy, that net equity supply rose by US$500 billion last year, the highest since 2010. He said this year will at least match that tally, noting a US$200 billion increase in equity supply in the first five months of 2020."The virus situation is creating a backlog of pending equity issuance.
This year though, Goldman Sachs predicts that U.S. buybacks will halve from 2019 levels to around US$370 billion. And the record US$60 billion raised on U.S. equity markets last month, shows companies are on a share-selling spree."Markets are under-estimating the reversal of what we saw in the past 10 years," Almeida said.
"As the buyback component gets reduced, companies can deploy capital into supply chains, automation, R&D ... This will be one of the lasting consequences from this crisis," Saldanha predicted. And equities will look attractive as an asset class given that equity risk premia - essentially stocks' excess future return over bonds - are well above long-term averages.
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