IPO — 2022 has been a disappointing year for the economy as a whole due to unforeseen elements like inflation.
As a result, there has been a slowdown in global initial public offerings.
While there were forecasts of an economic rebound for 2023, the Federal Reserve’s continued hike rate indicates that inflation remains a problem.
Furthermore, the IPO slowdown has continued into the first quarter of the year, and it is expected to endure in the coming months.
According to reports, one reason behind the IPO slowdown is that companies are waiting out the effects of the following:
- The volatile stock markets
- Higher interest rates
- Uncertainty around the banking crisis
On Thursday, an EY report found that 299 companies worldwide went public in the past three months, which is down 8% compared to the same period last year.
Additionally, funds raised from the listing fell by 61% year-on-year to $21.5 billion.
EY reports that the slump follows a 45% drop in IPOs in 2022.
“Through just one quarter of 2023, it was more of the same for the stuttering global IPO market,” the firm said in a released statement.
“Any initial euphoria at the start of the year was quickly dampened by the unexpected inflation and interest rate outlook, with the mood further stifled by the latest turmoil in the global banking system.”
For the past couple of months, investors have been struggling with a higher cost for living and higher interest rates.
Recently, their concerns have grown following a historic upheaval in the banking industry that led to emergency interventions for some prominent financial institutions including:
- Credit Suisse
- First Republic Bank
- Signature Bank
- Silicon Valley Bank
According to the EY report, the signs indicate that companies are holding out for the stock markets to stabilize and rebound before they list.
Read also: China is spending billions to bail out loans
The banking crisis
In early march, the United States witnessed the second largest US bank failure since the 2008 financial crisis.
Silicon Valley Bank customers quickly pulled their money out before US regulators took over.
However, the collapse created a domino effect that panicked markets and mounted up weight on weaker financial institutions that had already been struggling with the increasing interest rates.
Signature Bank followed a week later before First Republic Bank hit another crisis.
Before a major financial crisis could erupt, central banks and several major players in the industry stepped in with emergency cash to keep the banks afloat.
Regardless, markets have remained on edge.
In late 2022, IPO research firm Renaissance Capital reported the slowest period for the IPO market last seen in 2011.
The slowdown, while disappointing, still sparked some hope and optimism that the traditional IPO market would turn around.
However, IPOs for some of the most prospective startups seemed unlikely.
For example, TikTok parent company ByteDance has a significant value, but due to the economic tensions between the US and China, a stock listing isn’t anticipated to happen soon.
Furthermore, Chinese firms could opt to go public in Asia, namely Hong Kong or Shanghai, instead of New York.
US regulators also scrutinized publicly traded Chinese companies in 2022.
For example, the SEC investigated the IPO of Didi, China’s ride hailing app.
2023 Asia market
Asia Pacific EY IPO leader Ringo Choi revealed there was a backlog of firms interested in going public.
According to Choi, there are over 800 companies in the pipeline in mainland China.
However, he also noted that firms worldwide are biding their time after getting discouraged by a lack of returns for companies that went public in the last few months.
“Most of them report a loss,” Choi said. “People start to worry [and say], ‘Well, what’s the meaning for getting an IPO?’ Why don’t they wait?”
He expects the decline to carry into the summer, but things could also turn around with several factors helping investors regain confidence, including:
- Peaking inflation
- Softening energy prices
- The rebound in mainland China’s economy
Ringo Choi believes the global market would recover in the second half of 2023 after already hitting bottom.
“We’re lying on the floor,” he said. “It’s very easy for us to have a rebound.”
He also noted that governments worldwide are trying to promote IPOs in their respective jurisdictions, which could help spark a revival.
John Lee, Hong Kong’s Chief Executive, recently traveled to Saudi Arabia, urging companies to consider listings.
“Once there is evidence of a more stable market with higher certainty, investor confidence should return,” EY wrote in its statement.