Trick or treat: economic recovery and SPACs
In BNR Nieuwradio’s Beleggerspanel of 9 February 2021, Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics and Global Head Fixed Income at the Global Investment Center of the Private Bank of ABN AMRO, together with Reinder Wietsma of IBS Capital Management and Koen Bender of Mercurius Vermogensbeheer, discuss amongst others the prospects of economic recovery and the stance of the ECB and the announcement of a SPAC IPO in The Netherlands.
In the rebalancing of ABN Amro’s investment portfolio, luxury consumer goods (consumer discretionary) are assigned a greater weight at the cost of normal consumer goods. Construction materials have been given more weight as well. According to Pieterse-Bloem, this has to do with the prospect of economic growth and the complementary infrastructure investments. After more than a year of staying at home, not being able to persist in old consumption patterns, people are to spend more money in the coming period of hoped-for phase-out of measures.
Signs of recovery
In the United States, a package of aid measures has been announced of 1900 billion dollars to render ‘fast recovery’. 1900 billion dollars is a serious number, amounting up to 10 percent of the US GDP. According to Pieterse-Bloem, the most important question is yet to be decided upon: what will the money be spent on and how will the allocation of support end up in the right places? In the coming two weeks we will gain more information, since these plans still await approvement. However, it is important to stress that the risk of doing too little is more dangerous than the risk of doing too much. There does seem to be a change for the better, regarding inflation and the nourishment of healthy expectations for the future of the economy. For instance, oil prices are at the same level of before the pandemic again. This is an important indication of future expected inflation.
How is Europe coping? Lagarde, President of the ECB, has a positive image of the future. She points to the importance of a sound policy combining fiscal and monetary measures to fight the economic effects of the pandemic. According to Pieterse-Bloem, the forecasts of economic growth by the ECB are a bit too optimistic. She adds to this the assertion that the ECB is prone to give optimistic predictions.
Another subject is the emergence of SPACs (Special Purpose Acquisition Company): a company founded for the sole purpose of acquiring another company. To do so, the company raises money through an IPO. What (type of) company the SPAC intends to take over, is not clear. SPACs have a period of two years to find a company eligible for takeover. SPACs have become more popular during the last few years: the phenomenon is mostly seen in America, but are seen in the United Kingdom and France as well. In 2019, more than 13.6 billion dollars were raised in this way: more than four times the raised amount in 2016. Pieterse-Bloem: ‘what you buy, is a surprise in a little box’. The risk of SPACs is that people invest in a SPAC judging by the good name of someone who has tied their name to the project, for instance Steve Wozniak, one of the founding fathers of Apple. These people don’t bear any mention-worthy financial risk, but do reap the benefits if the project is a success. Pieterse-Bloem mentions the two-year term of a SPAC as well, since that is another risk that people have to bear in mind. During those two years, one’s investment is stuck within a vehicle that’s not listed, which implies more opportunity costs for investors.