Chapter 1
The global economy tries to reset
Businesses have begun to take the first steps towards resuming activity in the new normal.
Financial markets rebounded sooner and much more vigorously than might have been expected at the start of the pandemic, raising concerns that they had decoupled from economic fundamentals, which could in turn lead to another stock market rout before the end of the year.
Having dropped by over 30% between mid-February and late-March, the S&P 500 returned close to year-high levels in the first week of June. This was supported by fresh global liquidity spurred by close to zero or negative interest rates and renewed quantitative easing. In March-April alone, G7 central banks’ cumulative net asset purchases totalled about US$2.5t.
With equity prices back close to historically high levels and central banks providing ample liquidity, IPO activity picked up in late-May-June, coming off falls in April-May of 51% year on year in terms of the number of listings and 75% in terms of proceeds. Given the backlog of IPOs in the pipeline from earlier in the year, the outlook for the second half of 2020 and 2021 looks good.
However, much will depend on whether the recent stabilization can be maintained. A fall of 6% in the S&P 500 index amid a global retreat from equities on June 11th provided a stark reminder of the potential for renewed financial market turmoil, which could cause IPOs to be put on hold again.
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Overall, the macroeconomic outlook remains grim. Until more effective coronavirus treatments and a vaccine are widely available, uncertainty is likely to persist amid concerns of a second wave of infections, which could be triggered by the reopening of economies.
The OECD’s latest Economic Outlook published in June forecasts that under a “single-hit” scenario world (in which further lockdowns are avoided), real GDP will contract by 6% in 2020, followed by growth of 5.2% in 2021. Under the same scenario, US output is expected to decline by 7.3% in 2020, making only a partial recovery in 2021 with expected growth of 4.1%.
Economic consequences
6%expected rate of real GDP contraction, according to the OECD
A further source of uncertainty for cross-border IPO activity comes from the Holding Foreign Companies Accountable Act, approved by the US Senate on May 20th. The bill, which has yet to pass the House of Representatives, requires companies to certify that they are not owned or controlled by a foreign government, as well as to comply with audits by US regulators.
Adding to the inevitable existing geopolitical uncertainties in a US presidential election year, this potential change to US law and stock exchange regulations could deter foreign companies, especially Chinese firms, from going public in the US — and force some US listed companies to delist if they are not compliant. The impact is as yet unclear, however. Wall Street is likely to oppose the bill and affected companies may simply opt to list elsewhere, boosting IPO activity in other financial hubs.
Geopolitical uncertainties may affect cross-border IPOs, particularly between the US and China. But overall IPO activity is unlikely to be affected – rather, companies will simply opt to list in a financial hub without such complicated geopolitics.
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Chapter 2
Key highlights from global IPO trends
COVID-19 pandemic slows global IPO activity in the first half of 2020.
The IPO outlook for the second half of 2020 has improved but potential listings remain vulnerable to renewed financial market volatility triggered by geopolitical tensions and a second wave of COVID-19.
Due to the impact of COVID-19, global IPO activities slowed dramatically on both Americas and EMEIA exchanges between April and May 2020, compared with 2019, while Asia-Pacific recorded a slight decline.
As volatility levels subsided and sentiments stabilized, we saw a rebound in IPO activity across all three regions in June.
Overall, Q2 2020 saw a decline from Q2 2019 activities for all regions by deal numbers and for Americas and EMEIA by proceeds.
This dragged down 1H 2020 regional activities compared with 1H 2019, with the exception of Asia-Pacific, which benefited from some US Foreign Private Issuers (FPIs) completing their secondary listing in Hong Kong, together with strong performance from the Shanghai stock exchanges and Thailand recorded its largest IPO ever in 2020.
To get more insight into the steps companies need to take to maximize their chances of IPO success, download our Guide to Going Public (pdf).
Summary
The global IPO market is showing signs of recovery but companies hoping to list still need to remain highly vigilant to macroeconomic uncertainty, market turbulence and the continued threat of COVID-19.
