Do listed equity markets in the United States and the eurozone still serve a purpose? Analysts at Natixis question the utility of these markets. In principle, the two roles of listed equity markets are to finance companies and to provide information about them but listed equity markets no longer serve these purposes.
See: International stocks to provide a hedge against rising inflation – JP Morgan
Perhaps the sole purpose of listed equity markets has become to enrich shareholders through expansionary monetary policies?
“In the US, outside recessions, listed equities are bought back (net issuance is negative). In the eurozone, net issuance of listed equities is very low. Why do companies no longer use listed equity markets to raise capital? Probably because of the very high level of the cost of equity capital relative to the cost of debt. Also because of the rise of unlisted equities (private equity, family businesses, etc.)”
“The problem with listed equity markets is the very high volatility of valuations and the emergence of bubbles related to highly expansionary monetary policies (very low long-term interest rates, money supply growth). If there are bubbles and if equity valuations fluctuate wildly, then share prices no longer provide information on companies’ future value and earnings”
“Normally, listed equity markets finance companies and provide information on the future situation of companies. Both these normal functions of equity markets have now disappeared. It would be worrying if listed equity markets served the sole purpose of enriching shareholders thanks to the bubbles caused by expansionary monetary policies.”
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