What to Expect in 2023
Investors have bid farewell to FOMO and are bracing for even more impact after a year in which profitless tech firms, special purpose acquisition companies and anything crypto-related went into a tailspin.
The winnowing process will continue with debt restructurings and corporate bankruptcies rising from current low levels: Besides ongoing fallout from the failure of crypto exchange FTX, capital intensive and interest-rate sensitive sectors such as autos and real estate look vulnerable. Used car retailer Carvana Inc. has already seen two rounds of layoffs and its distressed bonds imply a high probability of default.
Though Porsche AG’s blockbuster market debut in September showed there’s still investor appetite for high-quality companies with strong balance sheets, the initial public offering market will remain subdued and SPACs will continue to return investor cash rather than pursue value-destroying deals.
Private startups will have to raise money at much lower valuations and cash-strapped listed groups will be acquired by better capitalized rivals or resort to esoteric funding such as convertible debt and equity lines of credit. Those with beaten down shares will have to do a reverse split to avoid delisting.
Financial sponsors will capitalize on lower valuations by taking companies private again, following the example of grillmaker Weber Inc. But private equity faces its own reckoning having piled too much debt onto portfolio companies.
Though big companies generally refinanced their debts when rates were lower and now have decent cash buffers, they will struggle to retain their inflation-stoking pricing power: post-pandemic “revenge-spending” will fade as unemployment rises and household savings are depleted, pressuring profit margins.
Shipping companies and automakers are especially vulnerable, having earned windfall profits due to a supply chain upheaval that’s now faded.
Rising wages will also weigh on corporate profits. So far pay deals have been fairly conservative, but workers won’t tolerate real wage cuts forever. The strikes that disrupted the UK in December may be just a foretaste for everyone else.
The specter of deindustrialization will continue in Europe as the US’s comparatively low energy costs and the Biden administration’s protectionist climate subsidies pull investment across the Atlantic. Expect a political battle over that, as well as China’s burgeoning auto and wind turbine exports.
From the Year Behind Us:
Is the Electric Scooter Apocalypse Upon Us?: The end of the free money era is bad news for companies that blanketed cities with scooters yet don’t make money. Fewer players would create a healthier industry.
Why Your First Electric Car Might Be Chinese: Gone are the days when China built cars of questionable quality. Chinese electric vehicles are proving a hit in Europe but protectionist trade barriers could yet spoil the party.
Can E-Bikes Rescue the Covid Bicycle Boom?: Bike stores are suffering from an inventory glut but high-priced e-bikes continue to transform urban transport.
Airbnb Knows It's Making Too Much Money Now: The very profitable homestay platform promises transparent pricing and more affordable options, and not before time.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by Chris Bryant
