Soaking up capital: US stock markets may create new forms of risks

SpaceX's record IPO highlights how global capital is gravitating towards US tech giants, raising concerns over funding, innovation and market depth elsewhere

The initial public offering (IPO) of SpaceX, the United States-based company that specialises in space exploration, has set a record. The price of its shares increased considerably upon listing, from $135 a share, and closing at $160. It raised $75 billion and set the company’s value at $1.77 trillion. For a company that barely existed a couple of decades ago, this is a magnificent achievement; but one that reflects, as well, the enormous appetite for a share in new sectors that have been opened up by technological advancement. It now seems likely that, given SpaceX’s enormous size, it will enter multiple indices over time — beginning with the Nasdaq 100 in about two weeks — and thus its stock price will continue to benefit from steady passive inflows and continue to appreciate. A self-reinforcing loop has thus been set up and it will soak up global risk capital. 

SpaceX’s public launch must not be seen in isolation. Two other mega IPOs are expected soon. Both are relatively recent companies, and are leaders in a sector that is supposed to be a major driver of future growth. These are OpenAI and Anthropic; their planned issues will be keenly watched to see if the broader market agrees with the sky-high valuations that they have been assigned by the private market. At a macro level, therefore, the tendency of global capital being mopped up by large United States-based and -listed companies will be reinforced by these IPOs. This makes it correspondingly harder to deploy such risk capital in other geographies. Emerging-market policymakers have long worried about the tendency of first-world monetary policy, and particularly that of the United States (US) Federal Reserve, to soak up investible funds and cause liquidity crunches in the rest of the world. Given this enormous size, the US stock market must cause analogous worries when it comes to equity capital. Even strong domestic savings might not be sufficient to support frontier firms in the face of this clear incentive for benchmark-driven capital to head to the US. 

Such concerns about a locked-in advantage take on greater significance when the differences between stock markets in countries like India and the US are examined. The bluechip indices in the former are dominated by well-established corporations, mostly in legacy sectors. In the US, however, companies from the new wave of technology-fuelled growth are at the top in terms of market capitalisation. Passive investors who are interested in benefiting from this growth story will, therefore, have to turn to American share indices at the expense of local ones. On the one hand, this reflects the failure of most places outside the US (and China, to an extent) to build new corporate champions. On the other, it demonstrates the inability of risk capital in these jurisdictions to identify, track and build up local value creators in the new economy. Without a deliberate effort to nurture technology-led enterprises from inception to scale, Indian indices will continue to reflect yesterday’s economy rather than tomorrow’s. Most worryingly, this is a new form of global economic concentration, where capital, talent and innovation increasingly cluster in a single market — one that is laden with structural debt and unpredictable politics, and in which institutions are steadily weakening. This produces the circumstances necessary for wholly new and unfamiliar forms of uncertainty.