US IPO Market: A Glimmer of Hope Fades Away in October Amidst Turmoil

Moomoo News Global wrote a column · Oct 25, 2023 18:22

The US IPO market saw a glimmer of hope in September with the debut of 3 star companies ( $Arm Holdings (ARM.US)$, $Klaviyo (KVYO.US)$ and $Maplebear (CART.US)$), which initially gave hope for the revival of the IPO market.

Arm Holdings, a British chip design company, skyrocketed 24.69% on its first day of trading in the United States, while Klaviyo and Instacart also performed well on their debut in New York.

However, the optimistic scenario did not last long. Despite an initial increase in their stock prices on their first day of trading, all three companies ended below their IPO prices over the course of the month.

US IPO Market: A Glimmer of Hope Fades Away in October Amidst Turmoil

The situation in the IPO market became even worse in October. When $Birkenstock (BIRK.US)$ went public on the New York Stock Exchange, investors expected an optimistic "awakening". However, at the end of the first day, Birkenstock's stock price fell to just above $40, below the IPO price of $46, marking the most tumultuous debut of any US-listed company worth over $1 billion in the past two years.

The reason why IPO market turned chilly in October can be attributed to several reasons:

1. Surging US treasury yields. The bedrock of the global financial system, US 10-year bond yields have shot up to 16-year highs,the promise of guaranteed yields on U.S. government debt draws investors away from equities.

2. The sudden escalation of the Israeli-Palestinian conflict. The Israeli-Palestinian conflict has heightened investors' risk aversion, making them more inclined to reduce their holdings of risky assets.

3. Uncertainty of the Economy. The growing uncertainty surrounding the path of the US economy, coupled with volatile data and tightening financial markets, has raised concerns about potential risks to growth. As a result, Federal Reserve policymakers have adopted a more cautious stance. It is highly unlikely that the Federal Reserve will be able to steer the US economy to a safe landing with interest rates above 5%.

This is also reflected in the transaction volume of the equity capital market. According to Dealogic, the transaction volume of the global equity capital market has reached $423 billion so far this year, an increase of 5% from the same period last year. However, it still lags far behind the record levels set in 2021.

Data compiled by Bloomberg showed that the funds raised by US stock exchange IPOs have only amounted to $47.6 billion since 2022, less than the total financing amount in the last two months of 2021.

What happens next? Different experts have mixed opinions

"I'm not expecting a lot of IPO activity between now and the end of the year," said David DiPietro, Head of Private Equity at T. Rowe Price. Historically, IPO market success has been driven by a strong stock market and demand for risky assets. However, due to the Federal Reserve's indication of maintaining rate hikes amid Middle East tensions and rising oil prices, the S&P 500 Index is expected to fall for the third consecutive month.

Some companies are still willing to test the current environment. In the past four weeks, at least 25 companies in the US and Europe have joined the stock market: medical payment software company Waystar and Hamilton Insurance submitted applications last week, while oil and natural gas producer Mach Natural Resources has set the price range for its IPO.

All the evidence indicates that there is still a long way to go for a full recovery of the IPO market.Some analysts suggest that after experiencing the inflation and interest rates spike in 2021, the "IPO window" has reopened for tech and other companies, although it still faces resistance."We're still in a rebuild mode for the market more than an absolute bull market," said Robert Stowe, head of Americas ECM at Barclays. "But we are starting to see more engagement (in IPOs) from both sides."

“From talking to clients and others in the ecosystem, there could be a window that opens up in mid-to-late-March and onwards,”said Conor Moore, head of KPMG's Private Enterprise practice.

Other holding companies are also weighing different options, such as private financing. Meanwhile, those companies that have already gone public can sell more stocks or issue convertible bonds to fill the gap left by the weak IPO market.

Source: Reuters, Financial Times, Bloomberg, Dealogic

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more

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