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01 November 2021

Redmayne Bentley Market Round Up

Lower yields on Governments bonds, which are in some cases providing negative real returns, is a new normal in present days, urging investors to explore other riskier alternatives, in order to chase higher yields. This has resulted in a boom of the US junk bond market, pushing outstanding debt in issue to record highs of US$1.5tn. A record 149 companies, including cryptocurrency exchange Coinbase joined the high-yield bond market this year, where lower-rated, riskier companies borrow money from large asset managers, pension funds and other investors.

With interest rates at record low levels, companies are eager to raise cheap funds and investors are desperate to put their cash to work, leading to a perfect symphony. There are acquisitions taking place at a pace never seen before with private equity firms willing to pay up to a 70% premium for public companies creating a need to finance acquisitions. But all is not bright, with rising debt issuance investors are struggling to conduct due diligence on the companies they lend to. The short time between the launch and completion of new deals often puts immense pressure on the work required to become familiar with these new issuers. All this combined is worrisome and may potentially lead to surprises down the line.

Focusing on UK, Glencore backed start-up Britishvolt is in advanced talks with the government to secure support for its electric car battery facility which, if successful, will be a huge boost for the auto industry in the country.  The company has been attempting to secure government support for more than a year now with the aim to become a large-scale UK battery producer. There is certainly a huge potential for immense competition in battery manufacturing with Nissan and its supplier Envision already manufacturing batteries in Sunderland, with plans to significantly expand the current capacity. Stellantis and Ford have recently secured British government financial support also. According to speculation, Britishvolt is in talks with Tevva Motors, a UK start-up that develops electric trucks and Lion Electric, a Canadian commercial vehicle group that supplies battery packs.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Redmayne Bentley Market Round Up
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