Global IPO Watch

Global indices end the first quarter with gains

The S&P 500 index ended the first quarter with a record close, whilst in Europe, the Stoxx 600 ended the quarter near an all-time high. Overall, these positive global market conditions were driven by continued government stimulus programmes, post-pandemic optimism fuelled by vaccine rollouts and improved macroeconomic indicators. However, as global indices have delivered solid performance in Q1 2021, the theme of sector rotation from tech and lockdown winners into cyclical stocks has continued, presenting performance challenges for some investors. In particular, some of the biggest tech stocks saw valuations trimmed, whilst autos, travel and leisure, and banking stocks saw notable gains.

Macroeconomic indicators supportive for the recovery

Global macroeconomic indicators provided positive momentum to equity capital markets with a solid economic recovery narrative. March PMI data across the US, Europe and Mainland China all exhibited significant improvement compared to prior months, indicating an expansion of business activity in all regions and overall confidence.

Strongest first quarter for global IPO activity in recent history

Global IPO issuance in Q1 2021 was US$202.9bn from 727 IPOs, fuelled by the significant SPAC IPO activity in the US (#298 / US$96.0bn). Technology and Consumer Discretionary (including e-commerce) have been driving the global IPO issuance this quarter. The US market has dominated IPO and FO issuance, accounting for 68% and 50% of the global proceeds raised through IPOs and FOs respectively.

Cyclical stocks expected to continue momentum

Cyclical stocks continued to build on their outperformance further in Q1 2021 that started last year following global vaccine rollouts. We expect the strength of the cyclical stocks to continue in the second quarter and beyond as macroeconomic indicators point to recovery.

Factors to watch out for in Q2

Equity markets have already priced in positive news around vaccine rollouts and any delay in vaccine progress may trigger spikes in market volatility. Extensive talks regarding inflationary trends since January have put the focus back on interest rates, however, policymakers continue to support their respective stimulus programmes keeping interest rates lower for longer. 

ESG strategy is no longer optional

Global shifts in investors’ attitude towards ESG across all markets has made it one of the top priorities for IPO candidates, as investors are now focusing on sustainability issues when making their investment decisions. ESG strategy is increasingly a critical pillar of the equity story for companies looking to go public. In particular, we see investors focusing not only on the coherent communication of the strategy, but also robust reporting of ESG metrics.

IPO pipeline is strong, sector representation to broaden

Whilst there is no shortage of IPO candidates and the upcoming quarter is looking very busy across sectors, the abundance of investment opportunities is likely to make investors more selective and price sensitive, reflecting on recent aftermarket performance.

We expect the IPO pipeline to broaden in terms of the sector representation including more of the recovery themed sectors in addition to Technology and Consumer Discretionary. 

$2tn plan to rebuild infrastructure and reshape the economy

In an effort to reshape the US economy, the US government has unveiled the plans to spend an additional $2tn in infrastructure investments and manufacturing subsidies, largely funded by corporate tax increases. The plan includes several ESG initiatives which were expected by the market and provided additional boost to renewables stocks in the US and Europe. The stimulus plan also proposed to invest in the semiconductor industry, helping technology stocks in both the US and Europe.

Another outstanding quarter for SPACs in the US

SPAC IPO activity in the US has seen another unprecedented quarter, already surpassing full year 2020 SPAC issuance. SPAC IPOs represented $96.0bn (71%) of US IPO proceeds in the first quarter. Notably, what has previously been largely a US phenomenon is now beginning to feature in other markets, particularly in Europe, where we have seen a number of SPAC IPOs pricing this quarter.

Retail investors are transforming the equity markets

Retail investors globally are becoming a more prominent feature of the equity markets and should not be considered a lockdown-phenomenon. With the ease of technology and reduced costs of trading, retail investors contribute to a significant volume of the secondary market trading in the US. Retail demand particularly around large consumer focused brands can no longer be ignored and may provide additional momentum to the IPO markets going forward.

Mainland China announced above 6 percent growth GDP target rate

In March the 2021 growth target rate for the Chinese economy was set to be at least 6% at this year’s National People’s Congress. However, current forecasts from the IMF already suggest a higher growth rate for this year amounting to well above 8% while still taking into account ongoing geopolitical tensions. Other Asian economies, such as India, are expected to expand at double-digit levels.

Strong debut into the new year for Asian IPOs

The best-ever first quarter for new Asian listings was driven by the constructive global market environment of high liquidity, low interest rates and rallying stock markets. Globally the two largest IPOs this quarter are coming from the Asia-Pacific region raising more than $10bn combined.

Outlook remains uncertain as the pipeline is focused on tech and growth stocks

Driven by high valuations, many technology companies were seeking to be listed in the first three months of the year to take advantage of high investor demand throughout the region. However, more recently early warning signals become apparent making opportunistic issuances more challenging. In particular, large Mainland China IPO candidates, which are considered to be of monopolistic character, are under high scrutiny by the government.