TOKYO - Bankers in Asian equity capital markets are hopeful of a better year in 2024 after a dismal showing for initial public offerings (IPOs) this year, noting that interest rates have stabilised globally, but they add that elections across the region and in the United States could crimp demand.

High interest rates, sticky inflation and geopolitical tensions have seen share sales by Asia-Pacific (including Japanese) companies sink by a fifth in value so far in 2023 to US$229 billion (S$304 billion), LSEG data shows. That has put this year on course to be the weakest since 2012.

The data covers new and secondary share sales, convertible bond issues and block trades.

But as interest rates in many countries appear to have peaked and talk turns to rate cuts in 2024, equity capital market (ECM) sentiment has improved in the last few weeks, bankers said.

“We’re in a window right now where the market has factored in a fairly benign macro outlook, which could prompt issuers to come. The pipeline is strong,” said Mr Udhay Furtado, Citi’s co-head of Asia equity capital markets.

Evidence of the improvement in sentiment for share sales has been seen in a number of block trade deals in the region over the past few weeks. These include Bain Capital selling down US$448 million worth of its shares in India’s Axis Bank in December.

Mr Furtado said, however, that windows for companies to come to market for funds would be “tight and tough to navigate” as elections get under way. As political activity heats up, businesses are typically reluctant to make major deal decisions, wary of potential policy changes.

Elections in the region will kick off with Taiwan in January. Indonesian, South Korean and Indian voters will also head to the polls, and the US election will be held in November.

Major deals in the pipeline for 2024 include Alibaba logistics firm Cainiao’s plan to raise US$1 billion to US$2 billion in a Hong Kong IPO. It would be the first major listing of an Alibaba unit.

Competition for IPOs in Asia is fierce, with fees generated from ECM deals accounting for almost 40 per cent of the region’s investment banking wallet versus 25 per cent globally.

China, Hong Kong

China is set to be the world’s busiest IPO market in 2023 for the second year in a row, despite a 35 per cent drop in the value of IPOs to US$37.3 billion so far this year amid a sputtering economy. Regulators have also sought to slow the pace of mainland IPOs as they work on improving mechanisms in secondary markets.

China’s economic woes and US-Sino friction have generally kept foreign investors underweight on Chinese equities in 2023, but moves by Beijing to shore up the economy appear to be having an effect.

“We are still seeing international investors be relatively cautious towards exposure in China; recent policy changes are providing comfort and sentiment is starting to turn a little more positive,” said Mr Sunil Dhupelia, co-head of ECM for Asia ex-Japan at JP Morgan.

New listings in Hong Kong, which had previously long benefited from Chinese companies rushing to raise capital in the city, have plunged 36 per cent to about US$5 billion in 2023 and are on track for their weakest year in at least 20 years, according to LSEG data.

For investment banks in Hong Kong, which had bulked up staff during the pandemic when rates were low, the slump has prompted widespread job cuts.

“Going forward, it will be very helpful for facilitating a successful listing in Hong Kong if listing applicants could have more than just a China story,” said Mr Richard Wang, a partner at law firm Freshfields Bruckhaus Deringer, who advises on mergers and acquisitions. REUTERS