Although global IPO deal activity was off to a slow start in the first half of 2023, green shoots have started to emerge across regions as the global macro environment becomes incrementally more constructive — albeit with varying trends across different regions.
According to iCapital, a global fintech platform driving access to alternative investments for the wealth management industry, there is potential for an uptick in global IPOs in the second half of the year. This is led by a robust deal environment in the Asia Pacific (APAC) region, which stands out as the frontrunner in generating the largest volume of IPO activity in 2023, and macro conditions favouring the US over Europe, and Europe over the UK.
In iCapital’s research report on global IPO markets by chief investment strategist Anastasia Amoroso and analyst Nicholas Weaver note the “tepid state” of global IPOs over the last six months. In the first half of 2023, the global IPO market experienced a significant decline, with deal volume down 38% when compared to the same period last year. This marked the lowest first-half deal volume since 2016, and represented a 31% drop below the historical average of the past 20 years.
While declines were observed across all major regions, they also point out that there has been “significant dispersion” in terms of the magnitude of the declines. For instance, IPO deal volumes in mainland China saw a comparatively moderate y-o-y decline of about 21% in the first half of 2023, while the rest of the APAC region faced a “staggering decrease” of approximately 73%.
Meanwhile, Europe’s IPO activity declined by 27%, but the UK saw a notable increase of 39%, albeit from very depressed levels in the first half of 2022. The US exhibited a noteworthy increase in deal volume, up by an impressive 98%, but again from a low base in the first half of 2022.
As such, mainland Chinese companies have taken the lead compared to other regions, contributing to 30% of the global deal count and an impressive 56% of the global deal volume during the first half of the year.
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Additionally, the rest of the APAC region accounts for 48% of the global deal count, although its deal volume is relatively lower at 13%. Consequently, the overall APAC region maintains its strong dominance in the global IPO activity landscape despite regional weakness comparing between 1H2023 and 2H2022, say Amoroso and Weaver.
The iCapital analysts also note that an “interesting” dynamic stands out when comparing IPO activity from the perspective of the listing exchange location, rather than from the company’s country of origin, another dynamic stands out. According to them, mainland China is attracting both the largest and greatest number of IPOs, with its exchanges hosting four of the world’s top ten largest IPOs and accounting for 52% of global deal volume in the first half of this year
“While this is partly due to a post-Covid reopening tailwind that was delayed in mainland China compared to the broader world, regulatory improvements in China’s mainland capital markets have contributed to a greater desire for companies to list within the country,” they say.
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Amoroso and Weaver add that China has recently relaxed strict information disclosure regulations for public companies and removed regulations that capped price changes after an IPO. “As a result, China’s mainland exchange listings continue to account for a larger share of the global IPO market, potentially affecting Hong Kong listings, which have seen a decline over the prior quarters.”
‘Robust’ 2H2023 outlook for mainland China and Hong Kong
The analysts anticipate that both mainland China and Hong Kong will see “robust IPO activity” in the second half of this year to the extent the right conditions materialise. In mainland China — where rates are likely to be cut, not hiked — valuations are recovering and growth could accelerate, especially as more government stimulus is expected in the second half of the year and CEO confidence is among the highest across regions.
According to the latest Conference Board CEO Confidence Measure for China, conducted at the end of May, a significant improvement in sentiment among CEOs of major multinational corporations operating in the country over the past six months was indicated. “CEOs attribute this improved sentiment to the better business conditions resulting from the lifting of COVID restrictions in mainland China and positive economic results in the first quarter, though we note weaker second quarter economic data in China may put a temporary cap on broader increases in sentiment,” say Amoroso and Weaver.
Beyond this, they note that China’s IPO pipeline is by far the largest in the world — a staggering 687 out of the 844 private equity and venture capital-backed companies that are currently in IPO registration globally are in mainland China, with Hong Kong also exhibiting a robust and stable IPO pipeline. This extensive pipeline could indicate the potential for a substantial pickup in public listings if the right conditions fall into place.
Say the analysts: “Current forecasts call for mainland China exchanges to top the global chart again this year with its exchanges expected to record 430 to 510 IPOs in A-share listings for the full-year 2023. These forecasts suggest that China’s Mainland exchanges may experience a record deal volume this year.”
Similarly, Hong Kong’s IPO market is also expected to regain momentum in the upcoming quarters, with forecasts of 100 IPOs on its exchanges for the full year, a notable increase from the roughly 30 IPOs in the first half of the year.
While regulation across regions and geopolitical developments can also play a big role in determining the “direction of travel”, Amoroso and Weaver believe that it is “fair to say” that central banks globally are closer to the end of their rate hiking cycles with most economies managing to avert a recession.
As such, they believe elevated IPO backlogs could suggest many companies are awaiting an opportune moment to go public. “The second half of 2023 holds potential for this moment to materialise.”
