The S&P 500 has continued to defy macroeconomic woes to hit yet another new high of 4,820 points on Jan 19 — two years since it hit this similar milestone. Back then, the market euphoria was driven partly by meme stocks and associated bull-market fluff. Those had since melted down, as the US Federal Reserve brought down inflation and any other hot heads left over from 2021. Now, as rate hikes appear to have run their course, new market drivers have emerged, with the AI-driven rally of the Magnificent Seven leading the way.
However, the broader-based rally from November that lifted the key US index by 16% struggled with a post-new year hangover, as it took three laborious weeks for the S&P 500 to eke out that extra 1% to cross the magic hurdle to reach the new record high.
Singapore, too, in the final two weeks of 2023 recovered from the bottom of its trading range for the year. A respectable bounce of between 4% and 5% took the Straits Times Index (STI) back to par (excluding 4% dividend yield) by Dec 31, along with decent volume for the month. Nonetheless, it too struggled to hold, with a few rotational plays among the blue chips moving in very tight but still tradable ranges of 2%-5% each. The STI held in a narrow range of just above 3,100 points, as investors yearned for new catalysts. As we head closer to the Chinese New Year, and the Feb 16 Budget Day, will February be any better?
Our caution on China for the year — reflected in the Hang Seng Index’s early negative performance — has started to play out. Beijing has voiced its support for its economy, the stock and property markets, but foreign investors remain sceptical. Common Prosperity’s reign remains. Freight rates out of China have doubled since December — a sign of exports picking up, but that might also be the hand of opportunistic shippers using the Red Sea as an excuse. For now, few catalysts are envisaged in the lead-up to the Two Sessions in March.
Some pundits tried to ascribe the lack of direction to the geopolitical risks from the first of many elections this year — Taiwan. In the lead-up to polling, companies and investors stepped up their contingency planning, with a wary eye on how China would react. As it turned, despite the victory of William Lai of the pro-independence Democratic Progressive Party, it appears to be much ado about nothing in the near term, as sabre-rattling continues for the benefit of the respective domestic audiences. The only earthquake in North Asia, unfortunately, was a real geological one on Japan’s Noto peninsula on New Year’s Day — not that the Nikkei and Topix cared as they continued to head in the direction towards the bubble highs of the 1980s.
Closer to home, a friend’s post on social media drew an LOL from me when he pointed out that when former Transport Minister S Iswaran’s charges came out, the “back to the future” complaints about Land Transport Authority’s SimplyGo app died down from the distraction. Similarly, when the value of money and assets laundered by the Fujian Gang and seized was found to have topped $3 billion, the news was relegated to the back pages.
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Indeed, there are many other headlines keeping investors occupied: from the hot US job numbers that have kept the Fed beguiled on where to take the rates next, to the latest steps taken by Donald Trump in his bid to reclaim the White House, then to the latest missiles lobbing to and fro around the Red Sea.
As such, it is probably rational for investors, big and small, to not make big bets so early in the year. Oddly enough, I prefer this scenario than to have raging bulls in January, only to run out of steam soon after. Given enough worries out there, from Hamas to Vladimir Putin and Trump, one hopes to potentially climb the wall of worry for this year gradually and stealthily.
Public gains, private pains
When central bankers ratcheted up rates in 2023, quite a few markets were sent into a deep freeze. While public equity markets represented by indices were generally positive, the fact that gains were not broad-based was reflected in the lack of IPO activity across most markets. For example, spacs calling it quits and returning capital to investors instead of acquiring a target is by no means a uniquely Singapore phenomenon; likewise, the general abysmal performance of companies following their de-spac as public market multiples in the broad market continued to lag private equity (PE) deals stuck in 2021’s bubble.
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Back then, PE was so hot that all manner of investors loved it. With double-digit smoothened returns with little mark to market (albeit with expensive fees for the manager taken out), it was an easy sell for private bankers — advantageous not only for distribution fees, but also that clients’ assets were locked up for up to seven years per product. Indeed, the vintage issues of 2016–2019, if they were able to make successful private market exits in 2021, did deliver outsized returns.
With the IPO drought since 2022, exits thinned and deal flows dried up as bid-offer spreads widened with a huge disconnect on valuation expectations between buyers and sellers — even for trade sales. Rising interest rates dried up financing as valuation models inevitably had to apply higher discount rates. Institutional investors generating returns from hope in previous years are now beginning to demand cash returns before committing themselves to new funds — hence putting pressure on managers to do “pragmatic” deals. Increasingly, sellers were forced to concede to lower valuations.
According to S&P Global, funds raised by PE firms in 2023 were at a six-year low. Last year, this column suggested that despite the reluctant markdowns from 2022, based on historical data, there was room to take down another 10% in valuation multiples. With interest rates steadying or declining, and managers who are getting more “realistic” under pressure, it looks like a thaw is beginning in 2024 as we are reaching those levels.
If private deals’ multiples reflect more public market valuations, this will be a source of IPOs as well globally, as managers running out of time for the funds’ expected life, can explain themselves. The crypto market has already emerged from winter if one looks at the price of Bitcoin; though with muted volumes and less frantic participation, it is a long way from the peaks of summer 2021. However, signs are that as public markets slow, private market activity is set to warm up this year at more respectable prices. 2024 might be the vintage you want to buy.
The curious case of CartaX
An interesting case study is Carta, which started life as the cap table manager or registrar of sorts, for Silicon Valley. As the boom in start-ups exploded, so did its business and valuation. A Series F round led by tech investment specialist Silver Lake in 2020 raised US$180 million. With much fanfare in August 2021, it launched an auction for its own shares on CartaX, its private price discovery platform for unlisted companies, which was touted as a future competitor to the Nasdaq or New York Stock Exchange. It seemed logical given that in 2021, with an estimated US$105 billion transacted, and assuming CartaX charges a small fee on both sides of the trade to help solve the problem of illiquidity in private markets, a huge revenue opportunity presented itself, thereby justifying its 4.5 times valuation jump since 2019.
Founder and then-CEO Henry Ward in 2021 stated that “a better price is more important than a good valuation. Accurate pricing of your stock is a financial tool. It makes M&A cheaper, and makes hiring employees less dilutive …” The auction priced US$500 million new funds raised from other blue-chip investors, including Goldman Sachs Growth and Permira, lifting Carta’s valuation to US$7.4 billion post-money, up from US$3.1 billion a year ago. It was valued at US$1.7 billion in 2019 (viewed as rich by those who lacked foresight) by Andreessen Horowitz, another legendary Silicon Valley investor, and has Lightspeed Ventures and well-known sovereign funds on its own cap table. Some earlier investors or employees also cashed out as secondary sales raised a further US$100 million in 2021. A year later, it managed to mark its valuation to US$8.5 billion as more employees sold shares to investors.
Since last year, the company has been in the news for the wrong reasons. A “rogue employee” breached the China Walls between the start-up cap table administration business and CartaX — the episode was outed by an unhappy start-up founder via X, formerly known as Twitter. Before long, the magic of helping price discovery of private companies vaporised; Carta turned CartaX off, as the 12-year-old company figured its 2023 US$373 million ($500 million) revenue and 15,000 customers were worth more reputation-wise than the distraction from CartaX whose revenues were but US$3 million last year — a far cry from the narrative of what propelled its Series G fund-raising round.
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As a private company, one can only guess if it makes a profit and how much, but at least its top line of business continues to grow from its core software as a service model, even if the cool story behind 2021’s fundraising is now melted ice.
Show me the money
If one wades into the start-up and PE world of investing, it is worthwhile recognising that the growth-at-all-costs business model of 2021 is over. It might yet come back, but certainly not in 2024. Rates may come off, but the “natural rate” is no longer 0-2%. It might settle a little higher just like global inflation.
I was thus chuffed that my first trip this year was to join an offsite in Bali with a local start-up fintech that not only survived and thrived through the pandemic, but was even profitable last year. With the tightly run team that works hard and plays hard (as I experienced firsthand), this might be the year to accelerate growth, raise more and spend more to build on its success.
I learnt too that Bali has shifted from homeborn, former president Megawati’s Partai Demokrasi Indonesia Perjuangan, which dominated local politics in the past. Today, the yellow flags of Prabowo Subianto and Gibran Rakabuming Raka (President Jokowi’s son) dominate the pre-election landscape.
Spring is in the air and opportunities are here. I prefer the ones that are thawing out from winter and generating more cash flows than those assets and stocks that have basked in 2023’s light, as delivering those stories requires more than ChatGPT.
Chew Sutat retired from Singapore Exchange S68 after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange, and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
