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Rough Global IPO Market: Implications for ETF Investors
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After a record year in 2021, the global market for initial public offerings (IPO - Free Report) was off in 2022. Initial public offerings on the New York Stock Exchange (NYSE) just nosedived last year. The number of IPOs declined about 93% year over year in 2022, NYSE president Lynn Martin had said at the Reuters NEXT conference on Nov 30, 2022, per a source. U.S. IPO index plunged 57% marking the worst year since its inception in 2009.
Rising inflation due to supply-chain woes and the resultant rise in interest rates, a valuation correction in high-multiple stocks, the stock market crash, geopolitical tensions caused by the Russia-Ukraine war, China’s zero-Covid policy and the finally the global growth slowdown had led to the mishap in the IPO market last year. About 71 U.S. IPOs raised just $7.7 billion, the slowest year by proceeds ever recorded in Renaissance Capital’s 30+ year history, per a Renaissance Capital report.
How Has Global IPO Market Fared in Q1 of 2023?
The IPO ETFs have rebounded this year as risk-on sentiments have received a shape. Chances of slower Fed rate hikes have made this possible. Renaissance IPO ETF (IPO - Free Report) is off 30.9% past year while Renaissance International IPO ETF (IPOS - Free Report) has lost 14.9% in the past one-year timeframe. IPO is up 13.5% this year and IPOS is off 2.5% this year (as of Apr 10, 2023).
Renaissance Capital revealed that there have been 32 IPOs priced this year, up 68.4% from last year. Total proceeds raised were $2.3 billion this year, up 11.5% from last year. There have been 59 IPOs filed this year, marking a 13.5% jump from last year. Industrials sector have dominated the activity.
However, global activities have not been that upbeat like the United States in the first quarter of 2023. In the first quarter of 2023 global IPO volumes dropped 8%, with proceeds falling 61% year over year, per EY article. Asia-Pacific and EMEIA geographies were specifically underperformers, per EY.
Globally, technology IPOs took the lead number-wise, followed by industrials, consumers and materials. But proceeds-wise, energy IPOs topped the list, followed by industrials, consumers, and materials, the EY article indicated.
What Lies Ahead?
Renaissance Capital expected at the start of 2023 that IPO activity should normalize in mid-2023 as companies in the pipeline are awaiting a favorable business condition. Meanwhile, EY expects a recovery in the situation in late 2023. Normally IPO activity gains momentum in the second quarter, and peaks in June. While markets are still recovering from bank-failure volatility, Renaissance Capital expects a few summer listings.
On the other hand, CNBC’s Jim Cramer sees the dry IPO market as a blessing for the stock market. This is because in absence of new entrants (or competitions), existing companies tend to do well. Moreover, existing companies that are too-big in size are less likely to be challenged by weaker new players as the latter might fall cash-strapped amid ongoing regional banking crisis and cannot easily bear flotation cost to raise more money through new stock issuances.
ETFs to Win in This Scenario
The U.S. IPO ETF IPO can be played given the sluggish recovery in the space. A few different sector ETFs can also be played in this regard. Participation in the IPO market by U.S. and foreign industrials companies have been noticed this year. This makes it important to play iShares Global Industrials ETF (EXI - Free Report) and iShares U.S. Industrials ETF (IYJ - Free Report) .
As far as the tech stocks are concerned, iShares Global Tech ETF (IXN - Free Report) should be kept under watch due to higher number of global IPOs from the technology sector. Mega-cap ETFs like Invesco S&P 500 Top 50 ETF (XLG - Free Report) can also be tapped due to their competitive advantage in related industries. At the end, size does matter in a shaky market.
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Rough Global IPO Market: Implications for ETF Investors
After a record year in 2021, the global market for initial public offerings (IPO - Free Report) was off in 2022. Initial public offerings on the New York Stock Exchange (NYSE) just nosedived last year. The number of IPOs declined about 93% year over year in 2022, NYSE president Lynn Martin had said at the Reuters NEXT conference on Nov 30, 2022, per a source. U.S. IPO index plunged 57% marking the worst year since its inception in 2009.
Rising inflation due to supply-chain woes and the resultant rise in interest rates, a valuation correction in high-multiple stocks, the stock market crash, geopolitical tensions caused by the Russia-Ukraine war, China’s zero-Covid policy and the finally the global growth slowdown had led to the mishap in the IPO market last year. About 71 U.S. IPOs raised just $7.7 billion, the slowest year by proceeds ever recorded in Renaissance Capital’s 30+ year history, per a Renaissance Capital report.
How Has Global IPO Market Fared in Q1 of 2023?
The IPO ETFs have rebounded this year as risk-on sentiments have received a shape. Chances of slower Fed rate hikes have made this possible. Renaissance IPO ETF (IPO - Free Report) is off 30.9% past year while Renaissance International IPO ETF (IPOS - Free Report) has lost 14.9% in the past one-year timeframe. IPO is up 13.5% this year and IPOS is off 2.5% this year (as of Apr 10, 2023).
Renaissance Capital revealed that there have been 32 IPOs priced this year, up 68.4% from last year. Total proceeds raised were $2.3 billion this year, up 11.5% from last year. There have been 59 IPOs filed this year, marking a 13.5% jump from last year. Industrials sector have dominated the activity.
However, global activities have not been that upbeat like the United States in the first quarter of 2023. In the first quarter of 2023 global IPO volumes dropped 8%, with proceeds falling 61% year over year, per EY article. Asia-Pacific and EMEIA geographies were specifically underperformers, per EY.
Globally, technology IPOs took the lead number-wise, followed by industrials, consumers and materials. But proceeds-wise, energy IPOs topped the list, followed by industrials, consumers, and materials, the EY article indicated.
What Lies Ahead?
Renaissance Capital expected at the start of 2023 that IPO activity should normalize in mid-2023 as companies in the pipeline are awaiting a favorable business condition. Meanwhile, EY expects a recovery in the situation in late 2023. Normally IPO activity gains momentum in the second quarter, and peaks in June. While markets are still recovering from bank-failure volatility, Renaissance Capital expects a few summer listings.
On the other hand, CNBC’s Jim Cramer sees the dry IPO market as a blessing for the stock market. This is because in absence of new entrants (or competitions), existing companies tend to do well. Moreover, existing companies that are too-big in size are less likely to be challenged by weaker new players as the latter might fall cash-strapped amid ongoing regional banking crisis and cannot easily bear flotation cost to raise more money through new stock issuances.
ETFs to Win in This Scenario
The U.S. IPO ETF IPO can be played given the sluggish recovery in the space. A few different sector ETFs can also be played in this regard. Participation in the IPO market by U.S. and foreign industrials companies have been noticed this year. This makes it important to play iShares Global Industrials ETF (EXI - Free Report) and iShares U.S. Industrials ETF (IYJ - Free Report) .
As far as the tech stocks are concerned, iShares Global Tech ETF (IXN - Free Report) should be kept under watch due to higher number of global IPOs from the technology sector. Mega-cap ETFs like Invesco S&P 500 Top 50 ETF (XLG - Free Report) can also be tapped due to their competitive advantage in related industries. At the end, size does matter in a shaky market.