The Economist - USA (2021-02-20)

The Economist February 20th 2021 Finance & economics 61

Great expectations

Economic forecasters are pencilling in heady growth rates for the world’s big econo-
mies this year. gdpin America is expected to expand by close to 6% in 2021, the fastest
pace since 1984. Growth is expected to be most rapid in the second and third quarters
of the year, as vaccinations boost activity and fiscal stimulus takes effect. By contrast
the bounce-back in the euro area and Britain is expected to be more modest this year.
That reflects a delayed recovery: with economies still locked down, output is expected
to contract in the first quarter.

The shape of things to come

GDP forecasts*, 2021

Sources: 14 economic forecasters, including investment banks and consultancies; The Economist *At February 16th 2021

Japan

Euro area

Britain

United States

China

1086420

By country

% increase on a year earlier

Low Median High

10

8

6

4

2

0

Q1 Q2 Q3 Q4

United States, median

% increase on previous quarter, annualised

Stock exchanges

Advantage

Amsterdam

T

hough many exchanges are run by

multinational companies, they are still

often seen as the financial equivalent of a

national football team. When Amsterdam

ousted London as the largest share-trading

centre in Europe last month, it made head-

lines in both countries. “Theeuwins first

battle for stock trading over Britons,” said

Het Financieele Dagblad. London’s Financial

Times observed that “Amsterdam punc-

tures the City’s post-Brexit hopes”.

Announcements of high-profile list-

ings in Amsterdam have further bolstered

the Dutch side. Jean-Pierre Mustier, the

former boss of UniCredit, an Italian bank,

and Bernard Arnault, a luxury-goods ty-

coon, are intending to list a special-pur-

pose acquisition company (spac) in Am-

sterdam aimed at buying fintech and other

financial firms. Vivendi, a French media

group, plans to list Universal Music, its re-

cord label, in the city. Earlier this month

Martin Blessing, the former boss of Germa-

ny’s Commerzbank, said he planned to

raise around €300m ($362m) for a spac

listed in Amsterdam that targets the finan-

cial industry. That follows an initial public

offering (ipo) last month by Poland’s In-

Post, an e-commerce group, which raised

€2.8bn—the biggest continental European

listing since 2018.

Ever since Britain voted to leave the Eu-

ropean Union, a number of continental ci-

ties, including Paris and Frankfurt, have

been vying to snatch business from Lon-

don. Amsterdam seems to have gained a

head-start. In January average daily Eu-

ropean share trading amounted to €9.2bn

on the Amsterdam bourse and the Dutch

arms of the Chicago Board Options Ex-

change (cboe) and Turquoise, a share-trad-

ing platform, much higher than daily trad-

ing of €2.6bn in 2020. By contrast, trading

sank to about €8.6bn in London in January,

about half its level in 2020.

The shift was foreseeable: after Britain’s

exit from the single market on January 1st,

the eurefused to grant it “equivalence”, a

regulatory arrangement that would have

allowed the City of London to trade rela-

tively unhampered in European markets.

That forced trading in European shares to

move to the continent. Both the cboeand

Turquoise plumped for the Netherlands as

their alternative to Britain.

Why Amsterdam? Euronext, the com-

pany that runs exchanges in cities includ-

ing Amsterdam, Brussels and Paris, has fo-

cused on building relationships with big

and small tech companies all over Europe,

says Michael Werner, a stock analyst at

ubs, a Swiss bank. The aim is to become the

listing venue of choice for hot tech compa-

nies. Several factors make the Dutch ex-

change more attractive than its continen-

tal rivals. Its regulation and governance

framework, such as its tolerance of dual-

class voting structures, are slightly more

favourable to companies. Its first-class in-

ternet infrastructure makes it easy to trade

fast. And the fact that English is so widely

(and well) spoken probably helps attract

foreigners.

Nonetheless, in most respects London’s

crown is still secure. Take the Dutch ipo

boom, which starts from a very low base.

Last year only two companies went public

in Amsterdam, compared with 33 on Lon-

don’s stock exchange; 11 firms have already

listed in London this year, to Amsterdam’s

one. A spokeswoman for Euronext says

that it is “too early to draw any conclu-

sions” from the jump in trading volume.

For Marieke Blom of ing, a Dutch bank,

the big question is whether the Brexit ef-

fect proves temporary or not. The euis

considering whether to grant Britain

equivalence. Even if it does, Amsterdam

could still benefit from a virtuous circle.

Stock exchanges compete so aggressively

for the thin-margin business of share trad-

ing because liquidity begets liquidity. The

high volume of trading should make it eas-

ier for sellers and buyers to find each other,

and that should make the exchange more

attractive for listings. Some of Amster-

dam’s gains will probably stick. 

BERLIN

The Dutch financial centre gains an

edge over continental rivals

listed via ipo.
However, about half the sample is made
up of “high-quality” spacs, defined as
those run by former Fortune 500 bosses or
set up by large private-equity firms. These
perform much better, outperformingipos
and the wider market over six months
(though not over 12).
How might the craze play out? About
three-quarters of spacs launched last year
are yet to do a deal. One scenario worth
considering is that bumper issuance leaves
many spacs unable to find suitable targets.
Investors can redeem their shares at cost
until a target is bought (the proceeds from
the spac’s ipoare kept in an escrow ac-
count in the meantime). The burden of
failure—the spac’s set-up and search ex-
penses—would therefore probably fall on
sponsors. In order to avoid this, many
might take any willing firm public. Voting
and redemption mechanisms guard inves-
tors against dodgy deals, though they have
not prevented investors from losing mon-
ey so far.
Investors’ willingness to accept poor re-
turns may wane as they become more fa-
miliar with spacs. They certainly grasp that
those like Mr Ackman’s, which will issue
him 6.7% of the shares in the merged firm
only once investors earn a 20% return, are
more sensibly structured, valuing it more
handsomely than the rest. (Its share prices
are trading at 50% above their ipo level.)
But they also still want to take a punt on Ni-
kola and other electric-vehicle copycats, in
the hope of finding the next Tesla. Seen
this way, the mania around spacs is simply
an expression of wider exuberance.