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.
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.
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 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.
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.
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.
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.
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.
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 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.
What may have been under appreciated in Q1 due to the focus on the SPAC phenomenon is Q1 2021 US IPO issuance was the strongest in over 20 years for operating companies.
The IPO volumes in Europe in Q1 has been the highest in years, reflecting the significant scale of investor demand as global investors are drawn to Europe's compelling relative value. Towards the end of the quarter investors' portfolio re-balancing appears to be driven by fundamental concerns of slower vaccine deployment, COVID 3rd wave and postponed recovery into the second half of the year.
In Amsterdam, a European Fintech SPAC, priced it's €415m IPO after running a 4 day bookbuild. In Frankfurt, a technology-focused SPAC concluded its €275m IPO in February, after a short two-day bookbuilding. A growing pipeline of European SPACs is expected to list in either Amsterdam or Frankfurt in the coming months.
Norway’s sovereign wealth fund Norges Bank, announced that it intends to accelerate divestments from companies that fall short of key ESG metrics. Notably, the investment manager calculated that companies performing poorly on sustainability metrics, are increasingly exhibiting lower returns.
This has been a strong start to the year for IPOs in Europe, with Q1 2021 delivering the strongest first quarter since 2000. Improved market confidence driven in part by the ongoing vaccination programmes across Europe, continued government support programmes and supportive macroeconomic data provided a positive backdrop. There are positive signs that momentum in the IPO market will continue throughout 2021. Given that backdrop, concerns around the pace of economic recovery and a hot IPO market in Q1, we anticipate that investors will focus on differentiated equity stories and challenge the overall quality of issuers.
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.
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.
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.
Two Asia tech IPOs topped the global IPO league table in Q1 2021. Other sizable tech listings and “returnee” listings in Shanghai and Hong Kong continued to drive growth. Looking ahead, mergers with SPACs as a route to public markets are increasingly being considered by Asia-Pacific issuers including some of the region’s tech unicorns.
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Partnerin, Capital Markets Europe Leader, PwC Germany
Tel: +49 211 981-2978
IPO Services Co-Leader, PwC United States
Tel: +1 (212) 845 0739
Capital Markets Leader, PwC China
Tel: +852 2289 1881