Asia ex Strategy - Equity Issuance: They Bake it Fresh Every Night - Citigroup

 Equity issuance is set to be US$256bn, or 2.1% of market cap — The historic range for Asia since 1992 has been between 1.4% and a peak of 5.3%. As such, the 2011 calendar does not look onerous for the markets. Dividends received will cover the capital required and, relative to bank deposits, equity issuance is a mere 1.6%. With savers on average receiving 340 bps of negative yield on deposits, shifting the equity should not prove onerous. Relative to money supply (M3), we stand at 2.1%; the danger zone is 2.5%.
 China, India & Korea lead, as do financials, industrials and materials — Asian markets, by virtue of what is getting listed, are becoming more cyclical and top-line driven. Sadly, the free-cash-flow consumer companies see no reason to invite investors on to their share register. Year to date, 34% of the calendar has been issued. We will need chirpier markets in H2 to get the rest away. Thailand, Malaysia and Taiwan will see the least issuance, as will technology and telecoms.
 No direct relationship in Asia ex between issuance and returns — The perception that excessive issuance leads to poor returns is not borne out. Markets lead issuance, not vice versa. Where investors need to pay attention is when lowleveraged companies ask for equity. This dilutes returns and is often rewarded with poor performance.