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With the fourth quarter now underway, global economies are grappling with the growth versus path to profit dilemma. It’s looking like a season of potential new beginnings for some. In the U.S., IPOs have recently enjoyed strong listings while China faces troubled assets along with a souring mood in equity markets. In New York, the dynamic start-up environment is ripe for capital. Across the coasts, the media industry is making progress with the Hollywood strike, while questions remain regarding the role of AI and streaming in revenues and employee pay.
Capital Markets
Mixed data coming out of China over the past few months has made economic predictions especially unclear. Either China’s dramatically slowing economy is caught in a structural downturn, with less and less room to maneuver, or Beijing will engineer renewed growth from a temporary bump in the post-COVID road to recovery.
While experts debate the fine points of economic theories, a former Chinese government statistics official says China’s oversupply of homes is far worse than previously reported. Morgan Stanley’s Managing Director Jitania Kandhari, said in a recent CNBC interview “China is overinvested. It’s overleveraged and it’s oversupplied. And then it has this geopolitical cloud over it”. She sees semiconductors and green tech as potential bright spots as well as India’s growth prospects rising as it enters an early stage real estate cycle.
China’s equity markets also continue to struggle. In the first half of 2023, initial public offerings (IPOs) by mainland Chinese technology, media and telecommunications (TMT) companies declined both in the total number of listings and the value of funds they raised, according to PwC. Despite these headwinds, their report highlights new capital market policies and prospects for overall recovery as positive signs for the sector.
Over in Hong Kong, stock market transaction volume dropped leaving many company stock untraded. From January to August of this year daily average trading volume decreased 12% to HK$ 112 billion. On September 14th, 28% of listed companies had zero transactions. This illiquidity is lowering valuations and making financing more difficult.
U.S. equity markets, however, look dramatically different as the IPO market begins to heat up. Arm, Instacart, and Klaviyo all did well on their first day of trading, though prices have moderated since then.
New York’s tech start-up scene also continues to thrive. Sequoia Capital opened a new office this past July. Last year over two thousand NY-based startups raised nearly $30 billion. The key to success, according to Goldman Sachs, is quality over quantity. Companies that are already profitable and show signs of strong sales growth are expected to do well post-IPO.
Media
Labor unions are making a comeback, most notably in Hollywood, as both writers and actors left the stage in pursuit of better contract terms. The disruptions affected scripted television shows, movies, and eventually even live TV as Drew Barrymore found out after deciding to go ahead despite the walkout. She soon reversed course after an outpouring of criticism and halted new airings.
Writers have now reached a tentative deal with studios after nearly 150 days. Specific terms have yet to be released, but concerns over streaming rights, wages, and the use of AI were all on the table. Aaron Paul, of “Breaking Bad” fame, said he doesn’t even get royalties for the streaming rights to the highly popular reruns on Netflix. There has been little progress to date with talks between studio heads and the Screen Actors Guild, which threatens to keep new TV episodes and movies in limbo.
No matter what happens with wage talks, streaming is likely to get more expensive for consumers. Gunnar Wiedenfels, Warner Bros. Discovery CFO recently told the Bank of America Securities Media, Communications & Entertainment Conference that streaming media was being sold too cheaply.
Over the past ten years, “in streaming, an enormously valuable amount of quality content has been given away well below fair market value, and I think that’s in the process of being corrected,” he said. Wiedefels also mentioned trying to get consumers into annual contracts to reduce churn.
Real Estate
The Fed decided to hold interest rates steady at their latest meeting. Inflation appears to be in check, but still far from the targeted 2% that bank governors prefer. Housing costs remain one of the key factors to lowering that number and 90% of July’s price increases were due to housing, according to the Labor Department.
With residential mortgage rates still hovering around 7%, sellers and buyers are in a conundrum. Homeowners that want to move cite 5% as the magic number to make the economics work. Those that are buying, even at current rates, are ending up with smaller homes.
At the higher end of the housing spectrum, wealthier buyers are no longer being courted by big banks that had been competing for their jumbo loans in the past. Climate change is also adding to homeowners’ concerns as insurers are removing natural disasters from policies as risks increase.
Still, there are promising signs of a recovery. Housing prices and rents are expected to drop over the next year. A number of price indices, including the S&P/Case-Shiller U.S. National Home Price Index, show slowing increases in both rents and home prices. Since they are a major contributor to U.S. inflation statistics, this adds to the likelihood that the Fed may pause or begin to reverse rate increases next year.
Corporate Culture
Work-from-anywhere, born out of COVID lockdowns, changed how businesses operate. And for those workers that are facing new restrictions, like mandatory attendance in the office three or more times a week, they’ve quit and found new jobs that sustained their preferred work culture. However, the years of talent bidding wars may be coming to an end. Businesses say they’re reducing starting salaries for recruits after years of salary increases.