Super-charged demand for Porsche shares means Volkswagen is pressing ahead with the luxury carmaker's initial public offering (IPO).
What does this mean?
With the average investor currently a bag of nerves, most companies would steer clear of an IPO anytime soon: after all, an atmosphere of lackluster demand and falling prices isn’t very inviting, and a more stable market might be a safer bet. But the world works differently for Volkswagen (VW). Earlier this month, it hinted at strong investor enthusiasm for its planned IPO of Porsche – and on Tuesday, new details suggested that the shares on offer will probably be dwarfed by demand. With state-backed investors like the Norwegian and Qatari wealth funds waiting in line to snap up shares, VW should have no trouble raising the €9.4 billion ($9.4 billion) it’s aiming at on September 29.
Why should I care?
The bigger picture: Still in the lap of luxury.
It pays to be a luxury firm these days. See, new data out this week shows German producer prices – prices paid at the wholesale level – jumped an eye-popping 45.8% in August versus the same month last year. For most sellers, the only feasible response involves jacking up prices, at the risk of losing cash-strapped customers. Not so for Porsche, though: would-be owners of 911 Carreras can afford to spend a little more without remortgaging the house, which gives Porsche the power to hike prices and protect profits – making it an attractive pick for investors.
Zooming in: Keeping it in the family.
VW’s also offering 25% of common shares to the Porsche-Piech family, in a deal that will see the founding clan regain control of the company. That’s good news: when it comes to luxury goods, there’s often a trade-off between short-term profits and long-term brand value. Family-controlled companies, taking a longer view of things, are often more interested in brand value over time – a valuable trait in the eyes of long-term investors.
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Japan's Almost-Welcome Inflation
Data released on Tuesday showed Japan’s core measure of inflation – consumer prices excluding fresh food – hit 2.8% in August.
What does this mean?
Anyone who’s been keeping up with Western rate hikes is probably looking at Japan a little enviously right now: while the Federal Reserve (Fed), Bank of England, and other major central banks have been upping interest rates to stave off inflation, the Bank of Japan (BoJ) hasn’t yet budged. That’s because the current inflation comes after a three-decade-long battle against periods of deflation – falling prices. If anything, the BoJ chief is probably half-glad he might finally be winning its battle against ever-slipping prices.
Why should I care?
The bigger picture: Deflation's no picnic.
When Japan’s almighty stock market and property bubble popped in the early ‘90s, it set the stage for spells of deflation that have plagued the country ever since. See, when prices are falling, consumers tend to sit tight with what they’ve got and delay buying anything in hopes that prices dip further. But this dampens spending and pushes prices lower in turn, setting in motion a declining spiral that ultimately damages economies.
For markets: The winners and losers of a lower yen.
With the Fed jacking up interest rates and the BoJ holding fast, the yen’s slid to a multi-decade low against the dollar. That’s good news for Japanese companies: it means that their products become cheaper for foreign buyers and their overseas earnings are converted into yen at a generous exchange rate. That might be why the Nikkei 225 – a benchmark of Japanese equities – has held pretty steady even as US and European indexes have dropped. But it’s bad news considering that the country imports much of its oil and gas: a weakened yen’s only going to make Japan's energy more expensive.
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