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Libertex traders gear up for bumper Reddit IPO

The US stock market finally reached a new all-time high this month after over a solid year of steady gains. Now, it seems as if the bulls are out in full force, with the dark days of 2022 little more than a distant memory. Indeed, the S&P 500 currently (19/03) sits at $5,172.39, while the Nasdaq 100 is valued at a cool $18,026.33, both around 75% higher than they were in December 2022. With prices at record levels, it's natural that companies would want to take advantage of higher valuations by taking this opportunity to float their firms. It may have been a while since we last had a high-profile IPO, but they don't come much bigger than a legacy social media giant like Reddit.

Reddit is set to start trading under the ticker RDDT this Thursday. Its initial public offering has already garnered huge interest from retail and institutional investors keen to take this opportunity to own a piece of this unique household name. And Libertex clients will be able to do just that via the Libertex platform. But what price is the stock likely to open at, and what kind of performance can we expect in both the short and long term? In this article, we'll try to answer these questions and more on this momentous occasion for the global equities market.

It's only a number

First, it's important to note that this isn't Reddit's first attempt at going public. It was revealed that the company confidentially filed for an IPO in December 2021 but ultimately decided not to go ahead with it. While we didn't have details of target price ranges or Reddit's financials back then, this time around, the data is much more extensive.

First, we have a firm target range of $31-$34 per share for a valuation of around $6.4 billion, down from the $10 billion they had hoped for in 2021. Nonetheless, in less than surprising fashion, the Reddit IPO is already oversubscribed by about five-fold, which means we could see prices at the end or beyond the target range. That said, the general appetite for growth stocks has taken a veritable nosedive since 2021, with interest rates at almost 20-year highs since the Fed's interest rate hike spree. Most recently, we saw this in action with the IPO of Instacart (CART), which went public at a valuation of $10 billion, which was roughly a quarter of its 2021 valuation. However, it's quite likely that over the long term, a high-profile stock like RDDT will manage to move with the wider market.

Don't sell yourself short

Another important factor with any IPO is the potential for organised shorts of the newly listed stock. Many feel that the famous maxim of "It's Probably Overpriced" holds true for many new listings, especially when made at times of all-time highs. Still, there's also a possibility that the retail cartel Wall Street Bets (which ironically shot to fame on the Reddit platform itself) could seek to turn RDDT into the next meme stock. This would mean that we might see a furious rise in the ticker's fortunes over the near term, followed by a severe crash when the bubble finally bursts.

However, we would be wise to remember that these kinds of pumps have not typically been devastating. Just look at GameStop (GME). While it's 75% down from its 2021 highs, it's still nearly 300% up from its pre-meme days. As with any stock, the chances of making gains will increase exponentially with time held, and the Reddit IPO will be no different in this regard.

Play the long game

As we've already touched upon, the short-term response to any IPO is very difficult to predict, but with Reddit, investors would be wise to look at the long-term prospects. Reddit, too, appears to have an eye on the future with its efforts to keep its user base loyal in the wake of the public offering, considering its previous opposition to attempts to monetise the platform.

For instance, Reddit has reserved around 1.76 million shares for top Redditors with high karma scores and strong moderator activity. In addition to having the option to buy at the opening price, they will also be able to sell right from the day of the IPO, an option that usually isn't given to preferential buyers. And while the company isn't yet officially profitable, its revenue was up 21% to $804 million in 2023, while losses fell 43% to $90.8 million. Moving into this year, Reddit plans to offer more advertising to its 73 million daily active users via microtargeting, which should help it grow its ad revenue going forward. The social media firm also recently signed a new $60 million per year licensing deal with Google that will see the search engine train its AI models using Reddit conversations. All of these bode well for RDDT's longer-term potential for growth.

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With a wide selection of CFDs in a whole host of underlying asset classes ranging from forex, metals and options to crypto, ETFs and, of course, stocks. In addition to major indices like the S&P 500 and Nasdaq 100, Libertex provides both long and short positions in many stocks, including several high-profile tickers, with Reddit set to be added once its IPO goes live. To create an account of your own, visit www.libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.77% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

[Libertex]

BoJ rate hike fails to halt yen's decline

With all the excitement in the European and US currency markets over the past couple of years – from the historic Euro-USD parity achieved in late 2022 to yoyo-ing Treasury bond yields – it's understandable that many Westerners' attention hasn't been on Asia. However, something historic in its own right has been playing out in the Far East all the while.

Unbeknownst to many, the Japanese yen has been falling quietly yet precipitously against the US dollar (and other majors) since 2021. In fact, the yen has now lost almost a third of its value, and, at its current level of 151.17 (27/03), USD/JPY hasn't been in this position for over 30 years. Even the BoJ's momentous decision to hike interest rates for the first time since 2007 last week didn't help stop the rot. The yen actually weakened further following the news.

The decline did stabilise, however, after Finance Minister Shunichi Suzuki said he would not rule out any measures to cope with the yen's woes, yet fears remain that any intervention by the Japanese central bank will inevitably be insufficient given the near 350 bps difference in the US and Japanese 10-year bonds. So, what is behind this epic downtrend in the national currency of one of the world's major economies, and how is it likely to play out long-term in the markets?

A long time in the making

It's a well-known fact that Japan has had some of the lowest interest rates in the world for decades. Indeed, until this recent increase, the BoJ's funds rate had been in negative territory for some time. Coupled with an aggressive QE policy that intensified during the pandemic, this devaluation of the yen was practically axiomatic. And despite wage growth suggesting the inflation can be managed, the low yields in the local bond market have forced major Japanese investors to keep about $3 trillion in foreign bonds and yen trades, which could otherwise be repatriated.

Unfortunately, it's hard to see how the Bank of Japan can compete with percentage yields above 4% without bankrupting the nation. Another potential pressure on the yen in a higher rate environment is the potential reduction in carry trades, a process by which large-volume traders purchase yen with the intention of investing the proceeds of the trade in higher-yielding currencies. For now, the yen is still the most attractive of the majors for this purpose. However, if rates continue to rise, there could be a further reduction in yen inflows going forward. Much will depend on whether we see a move further up towards 155 or back below the key support of 150, where we would expect to see long positions on the yen begin to flood in.

Look at the positives

As we've already touched upon, the Japanese labour market is strong, which means it can support some of the inflation generated by ultra-low rates, but not indefinitely. It appears as if the rise above 150 in the yen's pair with the US dollar has been taken as a watershed moment by the BoJ, as Finance Minister Suzuki has now promised to take "decisive steps" to strengthen the currency. Indeed, 151.94 was the point at which the central bank began actively purchasing yen back in October 2022, and it's no great leap to assume this is what the BoJ will begin doing again soon. It's hard to imagine that this policy won't result in a stronger yen, particularly if coupled with additional modest rate increases over the rest of 2024.

As with all things, the key will be striking the perfect balance between keeping the national currency under control and minimising the negative effect on the domestic credit market, where the extended period of ultra-low rates has seen huge amounts of borrowing that could leave debtors overleveraged if hikes are too sharp. Another important balance that must be borne in mind is that of imports and exports. The weaker yen has made imported products more expensive for the local market, but Japan is a huge exporter of high-value goods like cars and electronics, which have become much more attractive against this backdrop. For this reason, the BoJ will be hoping to hold USD/JPY somewhere in the 140–150 range.

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Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.77% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

[Libertex]

Reddit IPO success could push more firms to list

Amid a stock market that has been slowly recovering from a whirlwind period of extended volatility and out-of-control inflation, traders and investors are only just starting to regain confidence in equities despite the key US indices making steady gains for the past eighteen months now. In fact, the big catalyst for the restoration of faith was the new all-time highs recorded in late March, which saw the S&P 500 and Nasdaq 100 top $5,200 and $16,400, respectively.

Then came one of the biggest IPOs in recent years: internet giant Reddit. Trading began under the ticker RDDT last Thursday, 21 March, with the social media firm's initial public offering garnering massive demand from retail and institutional investors alike. Reddit initially targeted a price of $31–$34 for a $6.4 billion valuation, but they didn't anticipate what would happen next.

In an explosion of interest from the full spectrum of investor profiles, RDDT opened at around $50 per share. By Tuesday the next week, it had gained another 30% to rise above $65. Since then, the decline has been sharp, but at $50.25 as of 3 April, RDDT is worth pretty much exactly the same as it was on IPO day and over 50% more than the level the company had initially valued it at. So, what does this mean for Reddit and other US stocks going forward, and is this positive market trend likely to spark a spate of IPOs in the near term?

Beware the IPO

As Warren Buffet likes to say, IPO stands for "It's Probably Overpriced". While this isn't always the case, it can often be true of high-profile offerings at times of market highs. In the case of Reddit, there definitely was an aspect of this at play, but it appears to have been more than balanced by organised short-selling surrounding the launch of the ticker. In the end, we saw typical IPO behaviour of elevated volatility in the immediate aftermath of the listing, followed by a normalisation over the subsequent week. With a current price in and around its opening level and the targeted shorting apparently at an end, one has to think that Reddit's prospects look fairly positive from here on out.

As we've already mentioned, a price of $50+ is a solid 50% more than what Reddit was hoping for when it published its 2024 IPO documents. This puts the company's market valuation closer to its 2021 target of $10 billion and bodes well for investors' assessment of RDDT's future growth potential. If anything, this is confirmation that the best strategy for IPOs is to wait for the dust to settle and make an informed decision about if and how much to invest once the initial excitement has subsided. Having gained almost 10% on 2 April alone, it looks like Reddit could be on track to set a new high over the coming weeks as wider risk appetite appears to be increasing amid a strong US labour market and tamed inflation.

The first of many?

IPOs are a lot like buses in that you can wait forever without seeing one, and then several will come at once. Now, it's safe to say that the Reddit IPO has been a relative success, and with the scintillating stories of other lesser-known names already this year, we could be in for a raft of listings in the coming weeks and months. Perhaps the most successful of 2024 so far has been that of Santa Clara-based chipmaker Astera Labs, whose stock skyrocketed over the first week of trading last month (20–25 March). Much like Reddit, a slew of profit-taking and shorting brought declines in the days that followed, but the tech stock seems to have settled to a respectable $72.25 as of 3 April. That's a full 16.4% above its opening price of $62.03.

With over 32 late-stage startups worth $2 billion or more in the Bay Area alone, there are plenty of potential candidates for a 2024 IPO. In fact, Denver-based digital promotions startup Ibotta is already planning its stock market debut, and many analysts have suggested that Stripe and Databricks — worth an estimated $50 billion and $43 billion, respectively — are also likely to want to take advantage of the increase in bullish sentiment to bring in maximum funding for minimal equity. All of this will likely buoy the S&P 500 and Nasdaq 100 through to the end of the year, provided that the US Federal Reserve delivers on its more dovish policy promises.

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Libertex is an established CFD broker with experience connecting European traders and investors with the global financial markets, offering CFDs in almost everything from forex, commodities and options to ETFs and wider US indices like the S&P 500 and Nasdaq 100. For more information or to create an account today, go to www.libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.91% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

[Libertex]

Oil on the up as conflict threatens Middle East

Just when it seemed like energy prices were getting back under control following the huge spike of 2022 in the aftermath of the pandemic, oil is on the rise again. Back then, it was a combination of supply chain ruptures, huge demand increases following a return to business as usual, and high dollar inflation. Now, it’s a combination of geopolitical uncertainty and voluntary supply cuts by OPEC+ that are keeping oil prices high. The tense situation in the Middle East, escalation between Israel and major oil producer Iran, and continuing sanctions on other oil-producing countries could all contribute to a new all-time high in the coming months. Indeed, Brent is now back above the key level of $90 a barrel and looks set to keep on rising, while WTI and Light Sweet are both above $86 and similarly seeking further gains.

This couldn’t come at a worse time for ordinary consumers, who were just about managing to get back on their feet after historic price pressure tested their resilience to the limit. But as traders and investors know, wherever there’s a crisis, there’s also opportunity. So, with that in mind, let’s take a look at the likely trajectory for oil over the next weeks and months and see what factors will determine its movements over the rest of 2024.

Rising tensions

It’s been a recurring theme over the past couple of years, but it seems like the global geopolitical stakes have increased once again with the current situation in Israel and the wider regional stand-off underlying it. The attack on Iran’s embassy in Damascus has stoked concerns of an escalation involving this key oil producer and its potential impact on prices going forward. Now, though Iran’s oil is already subject to US and European sanctions, its availability has a significant knock-on effect on the global market since the plentiful supply of cheaper oil to countries not party to the sanctions reduces the amount of Brent and other US crude types required by these countries.

When one tap is turned off, all crude inevitably rises. The conflict in Eastern Europe is also making its mark on the supply side, with renewed attacks on refineries adding additional fuel to the fire (pardon the pun). The extent of the impact that such conflicts have on the global market will, in some way, be moderated by the US as the major power broker in the two theatres and a key producer in its own right. Whether this comes through diplomacy or market manipulation remains to be seen, but with an election around the corner, Biden will surely feel the pressure to keep crude below the $100 mark.

Artificial controls

As we all know, the oil market is far from free of outside influence, and its movements are often the result of government policy as much as they are supply and demand forces. Perhaps the most well-known price-fixing organisation is OPEC+, which has been implementing voluntary production cuts for well over a year now. Both Russia and Saudi Arabia have been cutting output by 1 million and 500,000 barrels per day (bpd), respectively, with Russia now reducing this to 471,000 bpd but switching export curbs for full production cuts. High prices typically suit these oil-producing countries, and artificially low production helps to elevate prices. However, they also like to be able to benefit from the higher prices, which requires producing and selling more oil. It’s a delicate balancing act that works well to keep prices within reasonable bounds.

The US is also a significant enough player to impact prices. Its current aim is to keep oil in check ahead of the major driving season so as to avoid creating malaise amongst the population just before they go to the polls in November. With this in mind, the US Energy Administration already upped crude reserves to 3.2 million barrels in the final week of March, despite a poll of Reuters analysts expecting a 1.5-million-barrel drop. If this policy persists and OPEC+ countries look to continue taking profit, we could well see oil move back towards the $80 mark and even below it.

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Libertex offers CFDs in a wide range of underlying assets, including commodities, forex, crypto and, of course, oil and gas. The Libertex platform gives you the ability to open long or short positions in crude oil CFDs like Brent, WTI, and Light Sweet with leverage. For more information or to create an account of your own, visit www.libertex.com/signup today.


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.91% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

[Libertex]

Chinese stocks back on radar as regulators bring clarity

For anyone holding Chinese stocks, the past few years have been quite the rollercoaster ride. From the US crackdowns on American depositary receipts (ADRs) to internal Chinese antitrust action against the country's tech giants, equities in the world's second-biggest economy have been under constant pressure.

As a fast-growing market with low correlation with the US and Europe, Chinese stocks were initially seen as a key asset class for risk-tolerant investors looking to diversify and maximise gains over time, but while other markets have enjoyed envious bull runs over the past 3-4 years, China's household tech names have endured a seemingly endless grind lower, followed by a period of post-COVID stagnation.

To put things into perspective, while Amazon has more than doubled in value since the start of 2023, Alibaba was at the exact same level on 17 April 2024 as it was in November 2022. It's a similar story for Tencent Holding and Baidu, which have barely managed to record 10% growth over the same period. But there finally appears to be some light at the end of the tunnel following welcome news from the China Securities Regulatory Commission that a wave of delistings will not be forthcoming. So, does this mean that now's the time to get back into China, and what are the factors that will drive or stunt growth in the rest of 2024?

Regulating fear

As is typically the case, the markets' fear of the implications of new regulation appears to have been exaggerated. This was then amplified further by the relative opacity and unpredictability of the Chinese regulatory environment. In the draft rules released on 12 April, the China Securities Regulatory Commission (CSRC) committed to raising the bar for initial public offerings, forcing unqualified companies to delist and enhancing its oversight of high-frequency trading. This led to a two-day sell-off that saw the market shed almost 10% of its value.

Now, however, the regulator has clarified that the new rules won't, in fact, lead to mass delistings but rather simply weed out "zombie shell companies" and bad actors, ultimately leading to a more transparent market framework and sustainable financial environment.

With precisely such concerns scaring many foreign investors out of Chinese equities, the new legislation could lead to a sustained inflow of international capital over time. The impact of the US's attack on ADRs has already been neutralised by equivalent listings by many affected firms on Hong Kong's Hang Seng. On top of that, given that the effect of last year's amendments to the CCP's Anti-Monopoly Law (AML) has already been baked into prices, the path to growth appears to be clear at last.

Unbeatable value

It's no secret that China's big tech stocks are available at unfathomably attractive prices. This is unsurprising following four years of steady declines. We've already touched upon the fact that Alibaba, Tencent, and Baidu have failed to register any significant growth in the past 18 months, but this is only half of the story.

Let's take Alibaba as an example. The global e-commerce titan is currently trading at an eight-year low of US$69.61 (HK$68), and with a PE ratio of 12.97, it is a veritable steal for a growth stock. At $HK300.80, Tencent similarly hasn't been lower in over six years and represents a 50% discount on its recent ATH. As for Baidu, its share price hasn't been this low (HK$93.10) in more than a decade, and its P/E ratio of 12.47 is almost as low as ultra-safe US value stocks like Wells Fargo and Bank of America.

When we take into account the fact that these companies have arms focusing on hot, scalable sectors like fintech, cloud computing and AI — all in a domestic market of almost 1.5 billion people — it's clear that hyperbolic levels of fear and mistrust are what have kept their share prices artificially low all this time. With evidence to suggest that a combination of new regulation and increased openness from the Chinese authorities could remove many of these investor barriers, we could look back on these opportunities in the same vein as Amazon and Apple stocks after the dot-com bubble.

Trade CFDs with Libertex

Libertex offers CFDs on a wide range of underlying assets, including Chinese and US stocks, commodities, forex, and crypto. The Libertex platform gives you the ability to open long or short positions in stock CFDs, such as Alibaba, Tencent, and Baidu, as well as ETFs like the iShares China Large Cap index. For more information or to create an account of your own, visit www.libertex.com/signup today.


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.91% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.