- Global issue volumes rose in the third quarter of 2020 to the highest level in 20 years
- The sharpest increase was seen in the US and China, with Europe catching up as well
- Positive IPO momentum, but the US elections, the pandemic, Brexit and concerns about a bubble are affecting IPO sentiment in a strong finish to the year
Following a weak first half, the global IPO market is booming: Stock markets around the world posted the strongest third quarter in 20 years, with 447 initial public offerings and a total issue volume of USD 95.0 billion. Compared with the same period the year before, the number of IPOs increased by 78 percent, and the issue volume more than doubled (rising by 138 percent). These are the results of the current global IPO barometer published by auditing and consulting firm EY.
The third quarter is usually a quiet period for initial public offerings. This year, a number of IPOs were postponed due to the coronavirus crisis in the first half of the year and, with markets flooded with liquidity, equity markets reached record highs – with IPO markets proving to be extraordinarily active as well. “Everything is different this year,” says Tobias Meyer, Head of Transaction Accounting and IPO Services in Switzerland, summing up the situation. “The third quarter, which is usually the weakest quarter, is now the strongest quarter of the year to date.”
The markets in the US and China posted especially strong performance: In China (including Hong Kong), the issue volume grew by 139 percent to USD 46.4 billion and the number of transactions climbed from 86 to 217 – an increase of 152 percent. In the US, the number of IPOs more than doubled, rising from 38 to 85 compared with the same period the year before, and the issue volume nearly tripled, jumping from USD 11.7 to 33.1 billion. Initial public offerings increased in Europe as well – but not as sharply as in other key IPO markets: The issue volume climbed by 51 percent to USD 6.2 billion, and the number of IPOs grew by 56 percent to 39. There were no IPOs in Switzerland in the third quarter.
Focus on tech companies
IPOs were driven by large and prominent transactions in the technology and health care sectors: Of the total global issue volume, technology IPOs accounted for 38 percent – or USD 36 billion – while health care companies made up 18 percent (USD 17 billion). The world’s largest transaction in the third quarter of 2020 was the initial public offering of Chinese chip manufacturer Semiconductor Manufacturing International, which brought in USD 7.5 billion, followed by US software company Snowflake (USD 3.9 billion) and Chinese real estate company KE Holdings (USD 2.4 billion).
Europe only accounted for one of the top ten IPOs: Britain’s The Hut Group, an e-commerce provider, took in a total of USD 2.4 billion as part of its IPO. “The coronavirus crisis is boosting the digitalization trend. Companies whose business model has a connection to the digital transformation of the economy are particularly in demand right now and can present a convincing equity story,” says Meyer.
Chance for a year-end rally – but increasing risks as well
In the view of IPO expert Tobias Meyer, the positive momentum in the third quarter, the high amount of liquidity and high valuation levels, together with relatively low volatility, point to a year-end rally on the global IPO market. In addition, there continues to be considerable investment pressure on investors. However, Meyer also sees risks: “The fourth quarter of 2020 and the beginning of next year will also be characterized by risks of potentially higher infection figures and ongoing tensions between China and the US. Other uncertainty factors include Brexit and the upcoming US elections.”
Tobias Meyer of EY Switzerland takes a critical view of the global discrepancy between weak economic growth on the one hand and high stock valuations on the other. This could lead to fear among investors of a bubble on the horizon, which could lead to further reactions in a year that has already been turbulent for stock markets.
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