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2010 - The Year of the IPO?

Global markets spent a good part of 2009 watching and waiting for the signs of economic recovery. At the start of this year, most economies, including the UK, had pulled themselves out of recession and with markets tentatively looking forward to moderate growth, 2010 seemed poised to provide the right conditions to pave the way for the return of the Initial Public Offering (IPO). 

Sightings of IPOs, or “companies floating on the stock market” to the layman, have been somewhat rare in recent years and understandably so. The economic climate could hardly have been worse for businesses looking to raise capital from a market trying to deal with the impacts of the credit crunch and with far more pressing concerns than the growth ambitions of private firms.

However, as a rising sense of cautious optimism for the economic outlook emerged, 2010 was starting to be seen as the “Year of the IPO”. This may still be the case, but such ambitions were given a reality check last week. 

Since January there has been increasing speculation about several high profile flotations on the London Stock Exchange. Firms rumoured to be considering IPOs include: New Look - the fashion outlet; Ocado - the online grocer and Merlin - owner of theme parks and attractions, such as Madame Tussauds and the London Eye. This rising crescendo was choked last week when TravelPort, widely anticipated as the first company in this new wave to come to market, pulled its plans to float, citing the current volatile market conditions.

Indeed, market conditions do not seem to favour IPOs at this time.  The FTSE 100 lost 8% in value between 19 January and 5 February, while the US VIX volatility index increased 48% across the same period - these factors combined to shake investor confidence. Confidence is a key ingredient in a successful IPO, as investors need to be convinced of a company’s value and future prospects. It appears that for the time being at least, a far more cautious stance has been adopted by investors, leading to TravelPort’s decision and to others making far more guarded comments about their immediate flotation plans.

However, this hiccup does not necessarily mean that we will have to wait long for IPO opportunities to come around again. There are still firms making positive statements about short term intentions to float and whilst market confidence appears somewhat fragile, the merits of a specific IPO will be driven by the fundamentals of the company in question.  Much of the gap in confidence around recent flotations has centred on whether the capital raised from the offer will be used to alleviate the debt burden of the company coming to market. Sentiment towards an IPO in a company that is debt free and has strong, long-term growth prospects could be decidedly different. 2010 may yet be the year of the IPO.

In recent weeks we have been providing more of a focus on IPOs in anticipation of their return. If you want to brush up on your knowledge in this area, you can.

Find out more about IPOs through our website guide, or read John Cotter’s article Cotter’s Corner: IPOs.

Pension economics: Baby boomers left holding the baby

As we enter a new decade following the worst economic downturn in modern times, the government’s focus is very much on reducing the United Kingdom's fiscal deficit and indeed what this means for the UK tax payer who has been left struggling as the country continues to experience high unemployment.  With a general election later this year and various policies being produced to tackle the budget deficit from both the Labour and Conservative parties, it is clear there are big decisions being made that will affect many generations to come.

This macro economic and political backdrop raises concerns on the prosperity of future generations. It is estimated that the UK rate of unemployment for young people (16-24 year olds) is 16.1%. This section of society risk becoming a ‘lost generation’. They will have problems getting on the employment and property ladders and this raises the question, how will they provide for their retirement in later years?  It also challenges the wider population on whether the country in general is doing enough to finance the later years in their life. So where is the wealth and how can Britain overcome these problems? This weeks Investment ViewPoint reviews the wealth deficit that faces current and future generations.

Are you saving for your retirement?

Perhaps the most important and daunting investment question facing the UK population today. It is easy to get caught up in the day-to-day challenges of earning a living, running a business or bringing up children but what happens in later life?  How do we ensure we have sufficient funds for our retirement years and what should we be doing about it now?

Market commentary suggests there is a lot that should be done just now to aid not only the current generation but future generations.  Speaking at the London School of Economics on Tuesday, David Willets, the Shadow Minister for Universities and Skills and Conservative MP for Havant, warned "We are in danger of imposing too many debts on the younger generations".  Mr Willets also produced data which showed that approximately 33 per cent of pension benefits in the UK were held by individuals aged 55 to 64 - referring to the baby boom generation born before 1970 (people who are now 55-64 were born between 1946 & 1955). He also commented that people aged between 45 and 54 held a further 25 per cent of pension benefits and astonishingly people aged between 50 and retirement age had an aggregate value of housing wealth standing at approximately £1,280bn which is double any other age group.

Schools out for pensions

Some of these statistics are quite concerning and raise observations of inequality between generations. It suggests that the generation born between 1970 and 2000 will never be able to accumulate the same level of pension or housing wealth as their parents. It also suggests that those generations will pay a heavy price in the future not only for the benefits being enjoyed by today's pension generation but indeed the burden of helping clear the UK's eye watering £11.5bn budget deficit*. It is clear today's pension generation face tough times and even tougher decisions on how they not only fund their retirement but perhaps more importantly what inheritance will they leave for their friends and family.  Mr Willets continues "My view is that baby boomers are not so selfish that they will not make sacrifices".

There are of course conflicting views on the UK's pensions crisis with George Magnus, Senior Economic Adviser to UBS, suggesting there has been little research into wealth inequality in the UK and there are several factors at hand that need to be considered on why there is such a disproportionate gap in housing wealth, not least the availability of cheap and easily accessible credit of the last thirty years where the UK housing market started to flourish.

Fail to prepare, then prepare to fail

How are you saving for your retirement?  There are a number of ways investors can position their pension portfolio to help ensure they make the most of their wealth in the coming years.  John Cotter, Vice President at Barclays Stockbrokers says, "Tax rates are on the rise and for the first year in more than 20 years we will have multiple higher rates. Therefore it is more important than ever to consider ways in which you can position money outside of the tax net by maximising any tax free allowances available to you. " 

Barclays Stockbrokers have a range of products to help you provide for your future financial needs.  Our PensionMaster account allows you to make your own pension decisions, choosing how, where and when to invest.  You can also save and invest in a tax-efficient manner through our Investment ISA with an annual contribution limit, currently £10,680.  Please remember that the tax year ends on 5 April 2011, so you still have time to maximise your contributions for the 2009/10 tax year if you have not already done so. Tax treatment can change in the future and are dependent on individual circumstances.

Of course if you are still undecided on how best to construct your pension portfolio there are tools available at your finger tips.  Login to our Research Centre where you will find out all the latest information on investment opportunities and current market movements.  Alternatively, login to access our Education Centre ( Investment ViewPoint: Connect) to see all the latest guides, training tools and investment publications and articles available to you as a Barclays Stockbrokers client.  Finally you can ask questions of our resident expert John Cotter, simply click the 'Email John' and we will respond in due course.  Alternatively email us to register your interest to attend one of John’s extremely popular seminars** which are currently being scheduled for various locations around the UK.

Making your own pension investment decisions are not for everyone and requires skill and knowledge, if you are unsure if this is the right thing for you please seek financial advice.

* As At December 2009. Office of National Statistics

** In response to client demand, in 2010 we are planning a number of seminars across the country that will be hosted by John Cotter. There will be two types of seminar - Investor and Trader. 

The 'Investor' seminar will be suitable for both beginners and more experienced investors who are looking to use the wealth of information, tools and products on our website to help them make more informed investment decisions.

The 'Trader' seminar is designed for more active traders and clients interested in leveraged trading such as Contracts for Difference, Financial Spread Trading and Foreign Exchange ('FX').

Roses are red, the FTSE is blue, markets are tough so what can you do.?

Love may well be in the air as we approach Valentine's Day, but there are mixed emotions on the performance of the FTSE since the start of the year and indeed what may lie in store for the year ahead.

 

This week's ViewPoint takes a look at the current market landscape on this Valentine's weekend and considers what opportunities are out there for those investors looking for a hot trade!

On Friday 5 February the FTSE danced around the psychologically important level of 5,000, down from a high of 5,420 a month earlier, a near 8% drop.  And while there has been a steady incline in the last week, the FTSE is again trading down today at 5,149 (Fri 12 Feb).

So what does this mean for lovers and traders alike?  Now that the FTSE is trading at a relative low does this mean its time to play footsie with the FTSE? Could this be the time to consider the iShares FTSE 100 for your portfolio? Or are there some more exotic asset classes primed to get temperatures rising?

In January, the UK technically came out of recession, posting a 0.1% growth in the economy, but this marginal growth means the UK continues to monitor its quantitative easing strategy.  Indeed, last week the Bank of England hinted that it could still inject billions more into the economy with the Bank Governor Mervyn King saying it was “too soon” to suggest halting quantitative easing. 

In Europe we are also seeing debt fears materialise, with Greece, the land of Aphrodite, continuing to have problems.  This week EU leaders acted to help Greece alleviate its debt crisis in order to ensure stability was maintained across the euro zone, but have stopped short of making any specific commitments.  This development has put pressure on the euro, making currency and equity markets very nervous indeed. 

This nervousness has also affected Portugal and Spain, which are seen as vulnerable if Greece’s problems aren’t managed successfully.  The Spanish economy shrank by 0.1% in Q4 2009, which means it is the last major economy to remain in recession.  President of the European Council Herman Van Rompuy appeared keen to voice his support for Greece at this week’s EU summit, issuing the following statement: “We fully support the efforts of the Greek government and their commitment to do whatever is necessary including adopting measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met.”

Despite this turbulent backdrop of macro economic activity, there are a number of ways to trade to your heart’s content including looking at our Top Ten trades, which are the most heavily traded shares by clients on the Barclays Stockbrokers website.

Oil and gas turns steamy

Petrofac, BP, Desire Petroleum all in the top ten trades this week, with crude oil prices climbing above $75 a barrel as investors find confidence in the European Union’s plans to support Greece.

Mining stocks to melt your heart

Xstrata was the fifth most purchased stock on Thursday 11 February, with Rio Tinto the sixth most sold stock on the day.

If you hold a long-term view of love and life in general then why not take a look at our new FTSE 100 Accelerated Returns issue 5 structured product, which is available exclusively to Barclays Stockbrokers clients from Monday 15 February until 15 March.  To speak to one of our structured product specialists, call 0845 300 9040.

However, if this isn’t hot enough for you and you have the experience and knowledge to trade our more risky products, then why not speculate on the price movement of sectors, indices or currencies with BARXdirect: CFDs and Financial Spread Trading or BARXdirect: FX which all offer online trading on a global time-zone. 

CFDs and Financial Spread trading are leveraged products which mean that you are required to deposit a fraction of the overall value of the trade.  Margins are variable and enable you to magnify your return on investment.  However, losses are also magnified and so CFDs and FST should only be used by experienced investors who are comfortable with the risks associated.

Happy Valentines Day!

Out of recession but not out of the woods

It was confirmed on Wednesday that the UK officially came out of recession with a 4th quarter growth of 0.1%.

Despite a return to growth, following six consecutive quarters of contraction and a 6.1% reduction in the economy, the news was met by a tentative market reaction, with a small 16 point rise to 5,276.85 by close on Wednesday 26 January.

This reluctance to celebrate follows a shaky start to the year for the economy. Take for example last weeks Investment ViewPoint: Comment Parallel economics where we discussed how investors are historically wary in the run up to a close run election and fuelling this, the continued uncertainty of how the Government will tackle Britain’s budget deficit of £178billion. Additional factors this week may have added to the apprehensive market mood including a shock announcement of sweeping reforms of the US banking system by President Obama (although the response from both UK Government and opposition indicate this might not be a consistently adopted approach), rumours around the possibility of the Chinese economy overheating and policy makers reigning in domestic bank lending.

The glimmer of recovery also seems to be restricted to certain sectors with others struggling to return to the black such as construction with public spending cuts adding to the pressure of low levels of building activity.

Alastair Darling yesterday warned that there remains a possibility that the UK could slip back into recession despite the growth. The impact of the return to previous tax levels of 17.5% and the Big Freeze have yet to take hold and may still have a detrimental effect on the economy.

A return to growth could also mean that it might not be too long until the quantitative easing measures introduced to combat recession, are paused, with close monitoring and control of inflation a prerequisite. No doubt the government will be paying very close attention to market reaction and next quarter’s figures to inform their next steps.

To stay abreast of market sentiment and the latest economic news sign up for our Alerts services. To register, login and select ‘Alerts’ from the left hand menu of the Research section. Choose from a range of stock alerts that will notify you via email whenever a stock prices rises/falls by an amount or percentage you select. Alternatively register for Market Insight Alerts directly from our research partners for all the latest market movements and news including Morning Call, Midday roundup and Analysts Views.