Global IPO Watch

Positive Q3 2021 equity markets performance in the US and Europe, despite a mixed macroeconomic backdrop

Equity markets in the US and Europe finished Q3 2021 in positive territory and, whilst the quarterly gains were modest, the S&P 500 and Stoxx 600 have recorded their 6th consecutive quarterly gain despite a mixed macroeconomic backdrop. The weakness in September was driven by several factors such as the signals of tightening of the monetary policies by central banks, inflation concerns, potential impact on economic recovery of the delta variant and supply chain disruptions. The August slowdown in China also reflected signs of weak consumer spending and, more recently, challenges in the Chinese property sector.

The beginning of a normalisation of the global IPO market in Q3 2021

After a record breaking first half of the year, global IPO activity has slowed down in Q3 2021 bringing the total quarterly issuance more in line with the historical levels. This can be attributed to a generally quieter summer period, diminishing SPAC issuance (vs Q1 2021) and a pause for Chinese IPOs in the US. Whilst global IPO issuance in the third quarter has totalled US$112.3bn, a slower quarter compared to last year’s Q3 issuance of US$122.3bn, it was still the most active Q3 in recent years in Europe and the UK. We have seen a variety of businesses coming to the market across a broad range of sectors including financials, technology, healthcare, industrials and consumer.

Global recovery is expected to continue, albeit at a slower pace and uncertainties exist

The outlook for inflation, expectations of tightening of the monetary policies and global supply chain disruptions are putting pressure on the post lockdown economic recovery. However, the recovery phase of the economic cycle is expected to continue through the remainder of 2021 and beyond, albeit at a slower pace, as reopening of economies is further supported by the rollout of booster vaccinations. Potential emergence of other virus variants, inflation concerns and further slowdown in China are the biggest risks to the economic growth outlook.

IPO pipeline remains strong, whilst investors are more selective and price sensitive

With a significant pipeline of deals to choose from, investors are now more selective and price sensitive as demonstrated by some of the recently cancelled or downsized transactions. Ability to demonstrate an attractive equity story underpinned by a robust set of KPIs, strong governance and early IPO preparation, would give issuers a greater chance to succeed at IPO and in the aftermarket. Another important consideration for investors is the aftermarket performance - this ties back into the IPO pricing and the overall quality of the issuers. Despite this backdrop, the IPO pipeline is expected to be very busy with a large number of issuers looking to tap the market in the fourth quarter.  

With increasing SPAC redemptions, the sentiment towards SPACs has cooled globally. This includes the European market which had not seen any new SPACs pricing since July until a sizeable SPAC listing in October on Euronext Amsterdam. However, the focus has now shifted towards SPAC mergers with a number of transactions closing this quarter and significant capital held for investment within SPACs.

ESG agenda continues to be a priority for investors 

An ESG agenda remains an important consideration in the investors’ decision making process. Our recent global investor survey on driving progress in ESG highlights that investors expect ESG to be a core part of the strategy with a clear route to net zero targets. Investors are also likely to take action if companies are not demonstrating they are doing enough to address relevant ESG priority topics. 

Economic growth to continue at a slower pace as the business cycle matures

Whilst it is expected that the recovery cycle will continue in the US, as it enters a mature phase, the pace is likely to slow. Other indicators such as US consumer confidence that has declined for the third consecutive month in September and recent miss from US non-farm payrolls indicate that the sentiment is fragile. Rising inflation and potential timing of the first rate hike by the Federal Reserve will continue to dominate headlines.

Slower Q3 IPO issuance in the US following exceptional H1 activity

Despite slower Q3 2021 IPO issuance compared to the previous quarters, the IPO market in the US has delivered a significant pipeline of deals across a variety of sectors with $39.0 bn of traditional IPOs and $16.8bn of SPAC IPOs pricing in the third quarter. Notably, the recent increase in SPAC redemptions signals a decrease in investors’ appetite towards this asset class with focus now shifting toward the SPAC merger transactions. 

Brazil’s IPO market is heading for a record breaking year

With 17 IPOs pricing in Q3, raising $5.1bn, the IPO market in Brazil is heading for a record year. However, investors grow cautious about increased political risk in Brazil and potential impact on the IPO market as the political situation develops. 

Still busy Q3 for Asian IPOs despite sell-off due to inflation

The major Asian stock markets tumbled at the end of this quarter, driven by rising commodity prices such as oil, gas and other economically very relevant commodities. At the same time, investor sentiment is very volatile as they fear continued global inflation and costly supply disruptions, especially for many Asian manufacturing companies. However, the number of IPOs and proceeds raised in Q3 is similar to the the level of Q2, demonstrating the overall robustness and confidence in the IPO market in the region despite the ongoing turbulences.

Chinese indebted property sector raises concern on economy outlook

The liquidity crisis in the Chinese real estate market has spread, raising fears that it could spill over into the Chinese economy as creditors' obligations are at risk. The challenge is to strike a sustainable - less debt intensive - balance, as the Chinese economy has long relied on the oversized real estate sector to generate growth and jobs. If authorities continue to reduce debt consistently, this will also have an enormous impact on the financial markets and change the perception of the Chinese economy.

Hong Kong’s worst IPO quarter since pandemic

Investors remain uncertain about Hong Kong's future status as the main Asian capital market hub outside China, as Chinese regulators have announced their aversion to US-listed tech IPOs. This ambiguity will prevent a significant upswing, which is not expected until early 2022 at the earliest, as domestic issuers seek clear guidance on foreign listing regulations.