After a sharp recession, global initial public offering (IPO) activity is expected to pick up momentum in 2023 as economic conditions improve.
In 2022, the stock market saw its worst decline in listed companies since the financial crisis as companies shelved trading amid heightened geopolitical tensions, soaring equity volatility and rising interest rates.
According to a report released this week by Ernst & Young (EY), 1,333 IPOs have raised US$179.5 billion (RM794bil) this year.
Global IPO activity points to a 45% and 61% year-on-year decline in deals and earnings, respectively.
“Record year for IPOs in 2021 has been replaced by heightened volatility due to heightened geopolitical tensions, inflation and aggressive rate hikes. Weaker stock markets, valuations and post-IPO ‘s performance further dampens IPO investor sentiment,” said Paul Go, Global IPO Leader at EY.
New listings declined in key markets such as London, Hong Kong and New York. However, compared to pre-pandemic, the number of transactions he has increased by 16%.
The Asia-Pacific market performed relatively well, driven by record IPO revenues raised in mainland China and strong IPO markets in Indonesia and Malaysia, the audit and advisory firm said.
Go said that while the Russian-Ukrainian war has caused energy supply shocks, it has also created a more lucrative IPO window for energy companies to go public, with IPO activity in the Middle East, China and some ASEAN countries. said to have supported
“With global markets beginning to show signs of low volatility, and with general expectations that interest rate increases will slow and end in 2023, more favorable conditions are in place for a greater rebound in global IPO activity. We will gain momentum by the second half of 2023,” he adds. However, companies should be prepared to explain their environmental, social and governance (ESG) strategies to investors. That’s because there’s a positive correlation between the company’s post-IPO share price performance and his ESG strategy communication, he said, EY.
Furthermore, “Given the poor post-IPO stock performance and rising interest rates, we need to be realistic and flexible about declining valuations and be well prepared to seize the window of opportunity when it opens.”
Companies are also encouraged to complete large pre-marketing and pre-IPO financings with underlying investors complete to reduce uncertainty and improve pricing leverage. .
Among Asia-Pacific countries, EY says mainland China will raise record amounts of funds in 2022, with some of the largest state-owned companies completing secondary listings on mainland exchanges.
South Korea, on the other hand, completed its largest global IPO earlier this year on the back of strong momentum from 2021. The listing of South Korean battery maker LG Energy Solution has raised US$10.8 billion (RM47.8 billion).
But with the exception of LG Energy, earnings in Seoul were down 85%, according to a recent Bloomberg report. The outlook for new listings in 2023 looks bleak as investors question the over-valued valuations of prospective companies in an environment of rising interest rates.
Two big hit IPOs within ASEAN were Indonesia’s PT GoTo Gojek Tokopedia Tbk and Thailand’s Thai Life Insurance.
GoTo, one of Indonesia’s largest technology companies, has raised US$1.1 billion (RM4.9bil) and Thai Life’s listing in July raised THB34.4 billion (RM4.3bil).
In Bursa Malaysia, Khazanah Nasional Bhd-backed dairy producer Farm Fresh Bhd made its debut in March, raising RM1.1bil.
“The Indonesian and Malaysian markets are also doing well in transaction numbers and/or revenue.
“However, the rest of the Asia-Pacific markets were more affected amidst the global economic and geopolitical backdrop and registered a decline in IPO activity at various levels,” EY said. increase.
Energy and technology have led this year’s large IPO issuances, the company notes.
While we expect the deal pipeline to recover in 2023, headwinds remain for the global economy.
JP Morgan believes a recession is likely in the US and Europe in its 2023 outlook report.
But he said the stock market could stabilize next year even if economic growth worsens.
As for China, we are seeing a reversal towards reopening, but it can be lagging and cautious.
“We believe equities are well positioned to deliver positive returns in 2023. A significant drop from current levels could represent a good buying opportunity,” Banks added.
According to JP Morgan, rate hikes are showing the intended impact.
“Globally, we believe inflation will continue on a downward trajectory through 2023, reaching levels consistent with most central bank targets by 2024,” he added.
As for Malaysia, UOB Kay Hian (UOBKH) Research expects 2023 to be a year of less turmoil in the domestic stock market, in contrast to expectations of lower GDP growth.
In the outlook for the first half of 2023 (first half of 2023), the research company predicts that the upward trend of Bursa Malaysia since October will continue until part of the first quarter (1Q23) of next year, in parallel with the global market. doing.
“However, equity markets should cool moderately in the first quarter of 2023 before rising by the second half of 2023. (Impact on energy prices), and we expect a gradual correction in global markets in Q1 2023 as investors pause assessments of the ongoing Russia-Ukraine war.”
UOBKH has a FBM KLCI target of 1,640 points by the end of 2023, based on 15.2x 2023 revenue. The target takes into account political risk premiums and potential earnings downgrades, it said.
However, the research firm expects foreign capital flows to improve in the first half of 2023, in line with the consensus view that US policy rates will peak in the first quarter of 2023. Locally, he expects the overnight policy rate to be raised twice (cumulatively by 50 basis points) to a final rate of 3.25% in the first quarter of 2023.
Similarly, RHB Research feels there is reason not to be pessimistic given expectations that the pace of monetary policy tightening is nearing its peak, while domestic political risks are waning.
However, the stock market warns that volatility trends will continue in the first half of 2023.
RHB Research said in a strategy report released yesterday: “The market catalysts we are observing are China’s bumpy reopening process, domestic regulatory concerns, investor reaction to weak macroeconomic and corporate data points, sustained will be offset by significant outflows of foreign capital.”
That said, the FBM KLCI is now at 13.2x earnings in FY24, noting that the forward valuation isn’t harsh.
“Investors should continue to approach 2023 with caution, but tend to build positions in the medium term and buy on a bearish note,” said RHB Research.
Some of the potential mega IPOs in ASEAN are Indonesian e-wallet service provider LinkAja and Logitech unicorn J&T Express.
In Malaysia, there was talk of the listing of QSR Brands (M) Holdings Bhd, which operates KFC and Pizza Hut restaurants in Southeast Asia.
The company, which is backed by private equity firms CVC Capital Partners and Johor Corp, has reportedly shelved its IPO plans this year after major investors deemed its valuation high. Once on the market, QSR could become one of Malaysia’s biggest IPOs in recent years.