Daily Brief: You Might Not Want To Go All In On SPACs Just Yet

Daily Brief: You Might Not Want To Go All In On SPACs Just Yet

almost 3 years ago3 mins

The special-purpose acquisition companies (SPACs) trend is at risk of petering out, as investors stop giving the “blank check companies” the not-so-blank checks they desperately need.

What does this mean?

SPACs – listed shell companies that merge with unlisted companies to fast-track their arrival on the stock market – are hugely popular among investors right now. So popular, in fact, that the number of SPACs listing on stock markets last quarter, as well as the amount they raised from investors, topped last year’s grand totals.

2021 SPAC proceeds have already shot past last year's record

But private investors are starting to get overwhelmed by the sheer number of opportunities. SPACs, after all, don’t just raise money from public investors when they first list on the stock market: they typically look to institutions for more money once they’ve identified which company they want to merge with. Now, though, SPACs are reportedly struggling to find those investors, which only want to do so many deals at a time. And it’s showing: there have only been four SPAC launches in the first week of April – down from 41 in the first week of March.

Turning Tide

Why should I care?

For markets: Regulators have made their minds up.

US regulators probably aren’t helping matters: they’d already advised investors against buying into SPACs based on celebrity endorsements, and shared their concerns about insider trading and lackluster research on the part of SPAC execs. And they really kicked the boot in last week, arguing that the lofty growth projections of SPAC-targeted businesses are “overstated at best, and potentially seriously misleading at worst”.

Zooming out: There’s life in the old SPAC yet.

Easy there, squirt: let’s not call time on the SPAC craze too soon. According to the Financial Times, ride-hailing and payment services company Grab is set to list via a SPAC that would value south-east Asia’s most valuable startup at $35 billion – making it the biggest SPAC merger ever.

Keep reading for our next story...

The US Dollar Just Had Its Best Performance In Three Years

USD image

The dollar chalked up its best performance in three years last quarter – much to the surprise of skeptical analysts and contrarian investors alike.

What does this mean?

The dollar’s safe-haven status saw the currency become an investing go-to during last spring’s coronavirus-induced meltdown, and its value shot up accordingly. But with economic growth on the rise and market volatility on the decline over the past six months, plenty of investors came into 2021 betting that the dollar would give up those gains – and then some.

Instead, a popular index tracking the dollar’s value versus six other major currencies jumped 3.6% last quarter. That could be because investors increasingly expect the US economy to outperform its rivals, thanks to a successful vaccination campaign and a $1.9 trillion infrastructure proposal. Alternatively, it could be because US government bond yields have risen lately, making dollar-denominated bonds look a lot more attractive than other countries’ debt.

Greenback defies predictions with resurgence this year

Why should I care?

For markets: When in doubt, invest in the dollar.

The dollar’s recent performance calls to mind the so-called “dollar smile theory”. That is, when the US economy is expanding relatively rapidly compared to the rest of the world, overseas investors tend to buy American investments – priced in dollars – in hopes of getting in on the action. The smiles keep coming when the world’s in crisis too, which is when the dollar looks like a particularly safe bet...

The bigger picture: If you’re invested in the dollar, have your doubts.

Investment banks might be backtracking on their predictions of a weaker dollar in the near future, but they’re sticking with them in the long run. A widening trade deficit means the US is buying more goods overseas than it exports, which means it has to sell the dollar to buy overseas currencies. A widening budget deficit, meanwhile, suggests the US government’s spending is exceeding its revenue – making its debt riskier and, in turn, less appealing.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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