Finance This Week — Chinese crackdown on tech, Housing market and more…
Monday 5th July 2021 — Friday 9th July 2021
1. China cracks down on tech companies and US listings
On Tuesday, China announced it would crack down on Chinese companies listing overseas, a move which could cool the current booming IPO market. Beijing’s State Council released a statement announcing it would tighten data regulations in relation to “cross-border data flows and the information security of overseas-listed companies.”
Didi Global is one of the companies under scrutiny by Chinese regulators. Didi ended trading down nearly 5% on Wednesday after plunging 20% on Tuesday. Beijing officials blocked new users from downloading Didi’s app and said in a statement: “After checks and verification, the Didi Chuxing app was found to be in serious violation of regulations in its collection and use of personal information.”
There still remains uncertainty about the rules as the government looks to draw up specific rules regarding cross-bored regulation. This uncertainty could lead to Chinese companies halting their listings in the US. According to Dealogic, about 20 China-based companies had been planning to go public in the US later this year.
LinkDoc has become the first firm to ditch its IPO plans as a result of the crackdown. LinkDoc Technology is a Chinese medical data firm and was due to hold its $211 million IPO this year. According to Reuters, analysts believe this is unlikely to be the only firm to pull out of a US listing. This could potentially hurt US banks facilitating and arranging IPO’s.
2. Wise IPO
On Wednesday, Wise, a UK fintech firm listed on the London Stock Exchange. The payments firm, founded in 2010, began trading at £8 per share in its direct listing. The stock gained more than 10% during the day to close at £8.88. The closing share price gives the firm a market cap of £8.8 billion. This means Wise is London’s biggest float of the year and the city’s largest ever tech listing.
In direct listings companies do not create new shares or raise any fresh capital. Instead, the existing private owners sell their ownership in the company. Wise, unlike some of its competitors, has had years of profitability. The group made a pre-tax profit of £41 million in the 12 months to March 31 with revenues of £421 million, according to the Financial Times.
A more detailed version of this IPO will be published next week.
3. Housing market shows signs of cooling off
The stamp duty holiday has led to a surge in buyer demand as homebuyers have sought to make the most of the tax break. From June 2020, buyers didn’t have to pay any stamp duty on the first £500,000 of their purchase price. However, since the start of July, there is now a 5% tax at £250,000 for properties up to £925,000.
In June, Zoopla reported that demand was 55% above levels recorded in 2019. Supply has significantly outstripped demand during the pandemic. The total stock of homes available to buy running 24% below average levels last year.
Moreover, according to Zoopla house prices increased by an average of £10,246 per property since the stamp duty holiday began in July 2020. Nationwide also recorded annual house price growth at 13.4% in June. The stamp duty holiday ended on Wednesday and many analysts believed this would lead to a drop in house prices. This has certainly been the case, with property prices falling for the first time since January. Month-on-month, the price of the average home slipped by 0.5% in June, a drop of £1,284 from £261,642 in May to £260,358. As a result annual house price inflation also eased back slightly from May’s 14-year high of 9.6% to stand at 8.8% in June.
It is likely house prices will continue to see a fall as from October rates are due to return to normal. This means the point homebuyers start paying stamp duty will move back to £125,001.
The housing market has boomed during the pandemic in the US too. The average price for US existing houses rose a record 23.6% year on year to a high of $350,300 last month. As the economy begins to return to normal, it is likely the Federal Reserve will increase interest rates which will also help to cool demand in the housing market.
4. Equities Update
Stocks fall as economic growth falls — Thursday/Friday
The US Federal Reserve also released minutes from its latest meeting on Wednesday and mentioned that the economic outlook for the US was uncertain, implying that growth in the economy may slow. This contributed to US stocks falling on Thursday with the S and P 500 declining 0.9% and the Nasdaq Composite falling 0.7%.
This downbeat sentiment from investors spread through Europe on Thursday too. The Stoxx Europe 600 lost 2% and the FTSE 100 in the UK was down 1.7%.
The UK economy grew by 0.8% in May, slower than the rate expected by analysts. Although this was the fourth consecutive month of growth, growth slowed from 2% in April. The ONS said the UK economy is still 3.1% smaller than it was pre-pandemic.