A combination of lower-volume share sales and increased corporate buybacks have resulted in the first drop in available shares in the U.S. since 2009.
Bloomberg is reporting that 1,972 U.S. companies issued $169-billion (U.S.) of new equity in 2011, but repurchased $397-billion of it, resulting in a 0.6 per cent drop in available shares. Share sales are at their lowest level since 2006, while buybacks are at a four-year high.
Limiting supply supports prices and is evidence that valuations are so low that executives prefer buybacks to spending cash on growth efforts, according to Columbia Management Investment Advisers LLC and USAA Investment Management Co.
Low interest rates mean that raising money through the bond market is cheaper than selling shares. Bloomberg data shows that U.S. share sales fell 8 per cent in 2011 as interest rates neared record lows, spurring companies to issue bonds instead. Corporate debt sales were up 3.2 per cent to $800-billion, exceeding stock offerings by the widest margin since 2008.
Bears see dwindling growth prospects and limited gains, which will keep investors who pulled money from stock funds out for the time being.