Chinese IPOs have raised more than five times as much money as those in the US this year as a string of new IPOs in the world’s largest economy failed to materialize after a dismal 2022.
Rising interest rates, stubbornly high inflation and the recent turmoil in the US banking sector have dashed hopes of a recovery for Wall Street’s floating companies.
European markets have also faltered, leaving Asia – and China in particular – as the clear global leader in IPO markets this year, helped by the end of tough pandemic restrictions and a new streamlined listing regime for the Shanghai and Shenzhen stock exchanges.
“It’s not so much that Asia has exploded, it’s just that the US and the rest of the world have slowed down so much that China and other markets end up being responsible for a lot of the activity,” said Avery Spear, an analyst at Renaissance Capital. “China has been reasonably resilient thanks to government commitment.”
The US’s poor performance contrasts with a lackluster 2022. U.S. IPOs have fallen 40 percent year-on-year in the four months to the end of April, with 56 offerings raising just over $3.8 billion, data from Dealogic shows.
This compares to more than $12.3 billion raised in the same period last year when financial markets sold off and a total of $130 billion raised in the first four months of the 2021 bull run.
“While there will be some activity, the idea that we will see a quick pullback in the regular US new issue market has come and gone,” said Seth Rubin, Stifel’s head of US equity capital markets.
He said the bulk of ECM activity in the next quarter is likely to be less risky businesses, such as B. Subsequent sales of shares and convertible bonds.
Rubin said investors have begun to show more interest in IPO candidates but are in no rush to buy new listings as many already listed groups are still trading at deep discounts to their previous valuations.
In contrast, China’s IPO market appears to be in relatively poor shape.
Substantial political support for bids by companies in strategic sectors and recent reforms to speed up IPOs have helped Chinese companies raise more than $19.5 billion in nearly 80 transactions, according to Dealogic.
That total is down about $4 billion year-on-year, but still accounts for about 53 percent of the global total in 2023, putting China’s market ahead of competing jurisdictions.
However, brisk activity in Shanghai and Shenzhen hasn’t impacted Hong Kong, where new listings have so far raised less than $1.5 billion and the average size of listings has fallen by almost a quarter year-on-year.
More than 45 percent of Hong Kong’s total fundraising comes from a single deal: ZJLD, the first Chinese liquor maker to list offshore, whose $675 million share sale has been touted as a potential precursor to a burgeoning revival of deal flow from mainland China.
In fact, shares of ZJLD ended Thursday’s first session down nearly 18 percent on weak demand, even after trading at the bottom of its target range.
The latest figures paint a bleak picture for Europe, where corporate offers have taken in £1.8bn so far this year, down 40 per cent from the first four months of 2022.
The UK has fared even worse, with six listings in 2023 taking just £90m. In its first quarter trading update, the London Stock Exchange Group chose for the first time not to include the latest figures for new issues and all money raised in its primary equity markets.
In the US, a strong start to the year for the S&P 500 had begun raising hopes that the US IPO market was on the verge of reopening until March’s collapse of the Silicon Valley bank triggered a fresh bout of volatility and renewed fears of an economic downturn.
“We thought we were there before the SVB; it felt like we were building momentum,” a senior US banker said, adding that recent gains by some big stocks have been supportive of the broader market, suggesting there is little desire among investors to get into buy smaller or riskier companies. “The world is still confusing — the S&P is above 4100, we’re only down 13 or 14 percent, but none of us feel like things are just 14 percent lower than they peaked.”
Carve-outs from larger, well-established companies have been one of the few areas of activity, with the forthcoming listing of Johnson & Johnson’s consumer arm following similar deals by AIG and Intel last year. The J&J deal, now known as Kenvue, is expected to be the largest US listing since Rivian in November 2021.
The deal is being closely watched as a test of investors’ appetites, but given its nature — Kenvue is well-established, profitable, and J&J will continue to own more than 90 percent of its shares — it’s not expected to prompt an immediate run of supporters .
“Investors are willing to do the work around quality companies, but they still have the leverage and will be very selective about what they buy and what they are willing to pay,” Rubin said. “Most investors don’t feel compelled to chase the new issue market right now.”
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