Stock markets are shrinking, and it's probably bad news for you

The US stock market has de-equitised, a fancy term that basically means that companies are buying more shares than they are issuing, every year since 2011. It's shrunk 2.3% since 2018.

This is natural, according to Citigroup strategists led by Robert Buckland. “This is a rational response to a radical shift in the cost of equity and debt financing,” the team said in a note.

Meanwhile, a second equity market, one for private equity, is growing just as the public market is shrinking.

The stock market is shrinking.

More specifically, the US stock market has shrunk by 2.3% since 2018, according to Citigroup strategists led by Robert Buckland, adding to shrinkage in every year since 2011. In the UK, the stock market has shrunk 3% since 2018, meanwhile.

This shrinkage, or de-equitisation, is a result of companies buying more shares than they are issuing.

Why are stock markets shrinking？ Here's what's going on:

Buybacks: Yes, companies are spending lots of money on buybacks. Buckland et al say that 3% of the US stock market was redeemed in 2018. Debt is cheap, and equity is expensive. The cost of debt in the US is 4.1%, while the cost of equity is 6.7%, according to Citigroup. In the UK, the contrast is even more striking, with a 4.6 percentage point spread between the cost of equity and the cost of debt. So buying back equity enhances earnings per share, both in reducing the share count and reducing the overall cost of funding.

M&A: There's been a bunch of big-ticket M&A of late, with much of that financed through debt. Think of it this way: Company X is worth $10 million and borrows the money to buy Company Y for $5 million. This, again, leads to de-equitisation, as it reduces the total amount of shares on the public market.

IPOs: Private companies are waiting longer to go public (see Uber), while there's a surplus of venture capital and private equity dry powder, or cash waiting to be invested in private companies. That's meant that the flow of private companies on to the stock market via initial public offerings has slowed in recent years.

Capex: Big companies used to issue equity to finance big capital expenditures, like a new plant or mine. But these investments have (1) been more muted in recent years, given a weak and volatile global economy following the Great Recession and (2) been financed with cash flow and/or, you guessed it, debt.

This trend has some worrying for the public markets, wondering whether public markets have perhaps permanently become less appealing. (See here, here and here for more on this.) Buckland isn't so sure. He writes:

There has been much soul-searching about other drivers of de-equitisation. Maybe companies are becoming increasingly reluctant to use public equity markets because of burdensome listing requirements, increased scrutiny or investor short-termism. But we suspect these wouldn't matter much if cheap capital and high valuations were on offer, as they were in the late 1990s.

Instead, he says that public equity markets are shrinking because companies can find cheaper capital elsewhere, with private equity and venture capital investors providing a second equity market of sorts.

And overall, the shrinkage of the stock market is entirely to be expected, given the impact of quantitative easing and post-recession central bank policies on the cost of debt, according to Citigroup.

“It is not our job to say whether de-equitisation is a force for social good or bad,” the note says. “But we do see it is a rational capitalist response to major divergence in the cost of debt and equity.”

美国股市已经去均衡，这个花哨的术语基本上意味着公司自2011年以来每年购买的股票数量都超过发行量。自2018年以来，它已经缩减了2.3％。据罗伯特巴克兰领导的花旗集团策略师称，这很自然。该团队在一份报告中表示，“这是对股权和债务融资成本发生根本转变的合理回应。”与此同时，第二个股票市场，即私募股权市场，正如公开市场一样增长正在萎缩。股市正在萎缩。据罗伯特·巴克兰（Robert Buckland）领导的花旗集团策略师称，更具体地说，美国股市自2018年以来已经萎缩了2.3％，并且自2011年以来每年都在萎缩。在英国，自2018年以来股市已萎缩3％同时。 这种收缩或去杠杆化是由于公司购买的股票比他们发行的更多。为什么股票市场在缩小？这是正在发生的事情：回购：是的，公司是在回购上花了很多钱。 Buckland等人说，美国股市的3％在2018年被赎回。债务便宜，股权价格昂贵。花旗集团（Citigroup）的数据显示，美国的债务成本为4.1％，而权益成本为6.7％。在英国，对比度更加惊人，股权成本与债务成本之间的差距为4.6个百分点。因此，回购股票可以提高每股收益，包括减少股票数量和降低总体资金成本。并购：最近有一大堆并购，其中大部分是通过债务融资。可以这样想：X公司价值1000万美元并借钱以500万美元购买Y公司。这再次导致去平衡，因为它减少了公共市场上的股票总量。 ▼首次公开招股：私营公司等待更长时间上市（见优步），而风险资本和私募股权干粉过剩，或等待投资私人公司的现金。这意味着私营公司的流动通过首次公开募股的股票市场近年来已经放缓。 资本支出：大公司曾经发行股权来为大型资本支出提供资金，比如新工厂或矿山。但是，鉴于大萧条后全球经济疲软和不稳定，以及（2）资金充足和/或您猜对了，这些投资近年来已经变得更加平静。这种趋势对公众市场有些担忧，想知道公共市场是否可能永远变得不那么吸引人了。 （见这里，这里和这里有关于此的更多信息。）巴克兰不太确定。他写道：对其他去除驱动的驱动因素有很多反省。由于繁重的上市要求，更严格的审查或投资者的短期行为，公司可能越来越不愿意使用公开股票市场。但我们怀疑，如果提供廉价资本和高估值，这些并不重要，因为它们是在20世纪90年代末期。相反，他说公共股票市场在萎缩，因为公司可以在其他地方找到更便宜的资本，私募股权和风险资本投资者提供各种类型的第二个股票市场。总体而言，鉴于量化宽松政策和经济衰退后中央银行政策对债务成本的影响，股市的萎缩完全可以预期，花旗集团表示。 “我们的工作不是要说去平衡是否是社会利益或坏的力量，”该说明说。 “但我们确实认为，这是对债务和股权成本主要分歧的理性资本主义回应。”