Geopolitical uncertainty weighs on IPO activity

EY report notes Asia-Pacific the standout performer in first nine months of year

The Asia-Pacific region has led the way on initial public offering (IPO) deals so far this year - and global IPOs generally also picked up steam in the third quarter.

But for the most part, geopolitical uncertainties have weighed on global IPO markets, though deal flow is set to improve next year, said a report by EY.

Global IPO proceeds in the first nine months of this year fell 39 per cent from a year back to US$79.4 billion (S$108 billion). The number of deals slid 23 per cent to 704.

This was even though third-quarter IPO activity jumped, with proceeds up 84 per cent year on year to US$35.4 billion as the number of deals rose 21 per cent to 252.

"Political uncertainty concerning Brexit and the United States elections, rather than the events themselves, is causing private companies to delay their decisions on when to list," EY noted.

Other geopolitical factors which have added to uncertainty include tension in the Middle East, the migrant crisis, concerns over slowing growth in China and uncertainty over US monetary policy.

THE GENERATOR

A continual flow of IPO activity is expected for the remainder of the year and into 2017, with China still very much the epicentre of such activity in Asia-Pacific.

MR MAX LOH, EY Asean and Singapore managing partner

Against this backdrop, many have decided to focus on preparing listings for next year, EY said.

The Asia-Pacific has been the standout performer. In the first nine months, it outpaced Europe and the Americas with US$42.1 billion raised via 406 IPOs. This was 53 per cent of global IPO proceeds and 58 per cent of deal volume.

While China continued to dominate IPO activity in the region, there was also healthy deal flow in Japan, Australia and South Korea.

In the third quarter, exchanges in South-east Asia raised a total of US$1.2 billion from 19 deals. This was led by Indonesia, which raised US$451 million from three deals; Singapore, with US$439 million from six deals; and Thailand, US$279 million from seven deals.

"Investor sentiment in Asia-Pacific is still being supported by ample liquidity in emerging markets," said Mr Max Loh, EY Asean and Singapore managing partner.

While concerns remain over a long spell of slow global economic growth, this does not seem to have had a proportionate effect on IPO activity, he added.

"A continual flow of IPO activity is expected for the remainder of the year and into 2017, with China still very much the epicentre of such activity in Asia-Pacific."

In Europe, the Middle East, India and Africa, proceeds in the first nine months fell 46 per cent year on year to US$23.3 billion, with deal volume dropping 27 per cent to 207. IPO activity in the US was muted, with proceeds in the same period falling 49 per cent to US$13.4 billion and volume off 44 per cent to 79 deals.

Still, though global IPO activity this year will likely lag behind last year's levels, the outlook for next year is positive. "Improving economic fundamentals, high valuations and lower volatility will support IPO sentiment," EY said.

A version of this article appeared in the print edition of The Straits Times on October 01, 2016, with the headline 'Geopolitical uncertainty weighs on IPO activity'. Print Edition | Subscribe