Capital Markets & Investor Relations

IR Monitor – 1st February 2021

Investor Relations News

This week, we start our monitor with a run-down of a 2021 seminar on the benefits of investor feedback. Next, we turn to the bumper January enjoyed the world over by companies looking to raise capital. Thirdly, we discuss the Gamestop debacle, and explore the reasons why the Reddit opposition to short selling may not be such a virtuous crusade. Following that, we ask whether the global obsession with ESG investing might be at risk of becoming a short-lived bubble, before exploring shareholder activism in the pharmaceutical sector. Finally, we take a look at the phenomenon of copy trading, and the associated risks for novice traders.

This week’s news

The benefits of investor feedback in uncertain times

A seminar hosted by the IR Society on the importance of investor feedback as a strategic IR tool in 2021 gave industry experts the opportunity to share their experiences of gathering investor feedback over the last year. While the pandemic forced many companies to withdraw their mid-term guidance in March, it did not weaken their resolve to keep investors informed and engaged. Peregrine Riviere, group IR director at WPP, said that in the place of mid-term guidance the company provided far more frequent short-term trading updates than usual. Reactive responses to investor concerns filled the months between March and July, after which the company began running perception studies and planning capital market days. Sonya Ghobrial, IR professional at GSK, said that investor feedback throughout the pandemic was vital in allowing the company to navigate the storm and remain plugged in to the market. There was agreement across the panel that 2021 will be a huge year for IR teams, with top-holders and non-holders alike playing a critical role in shaping each company’s regrowth as the world emerges from the chaos of 2020.

Bumper January for companies raising funds

While the governments and the public continue to struggle with the resurgence in Covid-19 this winter, companies looking to raise capital have enjoyed one of the most fruitful months in the past two decades, according to the Financial Times. A tidal wave of fresh stimulus from governments and central banks has washed its way through the capital markets at the start of the new year, leading to companies worldwide raising $400 billion in the first three weeks of 2021. According to data from Refinitiv, this is approximately $170 billion above the average haul for this time of year, showing that the boost to capital markets from new stimulus measures has outweighed concerns about the new Covid-19 variant. Companies have enjoyed record low and stable interest rates to expand their businesses, reorganise their shareholder base or simply cash out. Covid-19 concerns haven’t hampered companies’ appetite for new listings, either. Israeli mobile games company Playtika holds the crown for this year’s biggest listing so far, raising $2.2 billion, but with Bumble and Moonpig’s IPOs around the corner, and more expected to follow, there will be stiff competition for the year’s most successful float.

Out of options on Gamestop?

The past week has seen mania on Wall Street as members of the popular r/WallStreetBets Reddit page piled into Gamestop shares, causing the stock to surge and causing billions of dollars in losses for the hedge funds betting against the video game retailer. Many have touted this coordinated bet as a revolt against institutional short sellers, with high-profile figures such as Elon Musk and Bank of England chief Andrew Bailey questioning the ethical and economic viability of widespread shorting. However, Breakingviews suggested this week that the Reddit crusade against hedge funds might have done just as much harm as the positions they were trying to unseat. One of the principal objections levied against short sellers is that they profit from financial ruin, with little concern for redundancies or bankruptcy. However, just as the short sellers may be accused of indifference to the suffering of those working at the companies they short, so too can the Reddit mob be accused of indifference to long-term stability. All that seemed to matter this week was that Gamestop shares soared, unseating the hedge funds’ positions and making the forum members millions in the process. Breakingviews reminded us that the rollercoaster ride Gamestop has been locked into will make it hard for the company to raise capital as it transitions from a physical retailer to an online store, upsetting the company’s mid-term prospects for recovery. Though there may be legitimate concerns about the ethics of short selling, perhaps the charging of the Reddit bulls offers little by way of improvement.

Is ESG the latest bubble in investing?   

2020 was a momentous year for ESG investing as assets in sustainable funds globally passed the $1 trillion mark and companies judged to be performing well on ESG criteria saw their share prices fly up. With ESG investing continuing to pick up great pace, Investment Week asked whether the phenomenon is at risk of turning into a bubble. Those concerned, worry that ESG Investing has fallen into a “hype cycle” where onrushing enthusiasm takes things beyond the point of rational justification. As a result, some are warning of a potentially sharp market correction that could wreak havoc for the share prices of the world’s largest companies. Central to this theory is the absence of consensus regarding the evaluation of ESG metrics with a range of methods and approaches in play today. Those who hold such concerns believe that as investors look for clarity on ESG grading it will become apparent that many stocks benefitting from an ESG bump are simply not living up to the hype. As investors undoubtedly become more discerning in their ESG preferences in 2021, it will be interesting to monitor whether indeed a bubble does burst.

Pharma companies under the microscope

Long thought of as an industry rarely beset with activist shareholders, the Pharmaceutical sector may soon have to get used to increased action. Data released by Lazard last week showed a sharp rise in activist campaigns across the sector in recent years. Reasons for this rise in activity are plentiful, however, it is perhaps wasteful spending that encourages the most ire. Returns from research and development have plummeted in the sector in recent times, with average annual return clocking in at a measly 2% in 2019. Unhappy with performance, activists have begun to demand cost cutting exercises or the hiring of board members with proven track records regarding investment.

And finally … acting on the advice of strangers  

Thanks to platforms such as Etoro, the notion of copy trading has slowly entered the mainstream. As a result, thousands of people across the globe are making trades every day on the stock market, automatically, based on the decisions of a complete stranger. Unregulated and often untrained, the investors who build up a significant following on such platforms now find themselves in a position of immense power as their decisions have a real effect on people’s lives. As the prominence of copy trading has risen, questions are being asked, with many wondering if such platforms (accessed by swathes of young adults) generate unrealistic expectations of what the stock market can return in the long run. The concern is also that such a practice can only end badly for the thousands of novices that take part, with some comparing it to the dotcom bubble. The ongoing debate, covered by The Times, reveals that while measures are in place to ensure users do not incur unwanted levels of risk, up to 2% of those leading the direction of strangers’ portfolios are removed each year for flying too close to the sun.

Conferences

3rd-4th February – New Paradigms and Treatment Approaches in Mental Health – Canaccord Genuity

4th February – Infrastructure & Utilities Conference – BMO Capital Markets 

Contact Us

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