Despite the unexciting performance of much of the global IPO market in 2019 – and specific political pressures in Asia – sentiment and trends in the region’s markets remain extremely upbeat, reveals a report from professional services firm EY.
China’s capital markets is currently going through a golden phase, especially the new, Nasdaq-inspired Star Market, which is booming.
And despite the deep unrest in Hong Kong, a great deal of focus in the financial market is on the upcoming $20 bn listing of tech giant Alibaba in a secondary float planned for Hong Kong this year.
The Asia-Pacific region dominated global IPO activity so far in 2019, despite the specter of trade tensions between China and the US.
‘By proceeds, the region accounted for three of the top 10 exchanges. Asia-Pacific’s main markets experienced average first-day returns of around 19 percent and average current returns of 34 percent, illustrating that IPO performance continues to elevate IPO investor sentiment,’ says EY in its second-quarter 2019 Global IPO Trends report.
This is despite the fact that the region’s IPO activity in the first half of this year was down 12 percent by volume (266 IPOs) and 27 percent by proceeds ($22.3 bn), compared with the same period last year.
In its report, EY notes that despite volumes and proceeds coming in lower in the first half of this year, positive investor sentiment and a healthy IPO pipeline suggest that activity in the region will pick up in the second half.
Interestingly, Thailand is also likely to see an upswing in terms of listings, with furniture retailer Index Living Mall making its debut last month.
In the April-June period, markets in the Association of Southeast Asian Nations (ASEAN) region saw a notable increase in deal numbers – 29 IPOs marking a 53 percent rise – over the first quarter of 2019 and a significant boost in proceeds ($1.7 bn for a 447 percent rise).
Key sectors that are expected to remain active and collect investor interest include technology, media and entertainment ‘as companies from these sectors are expected to drive the IPO markets in the Asia-Pacific for the rest of 2019,’ according to EY.
For sectors such as industrials and natural resources, investors might continue to limit their short-term exposure due to US-China trade tensions, while remaining focused on valuations and post-IPO performance, notes the report.
Within the Asia region, both mainland Chinese and Hong Kong IPO markets are expected to remain positive – for Chinese IPO markets, activity in the second half of 2019 is likely to be driven by the burgeoning Star Market.
For Japan’s Tokyo Stock Exchange, EY expects to see 90-100 IPOs in 2019, equivalent to 2018. However, EY does not expect any mega IPOs to hit the market. As a result, small and mid-sized companies are expected to form the bulk of IPO activity in Japan in the second half of 2019.
In Southeast Asia, EY expects the level of IPO market activity to remain quiet in the second half unless geopolitical and trade uncertainties stabilize, adding that ‘entrepreneurial companies’ are likely to dominate IPO activity.
In the first half of the year, Southeast Asia saw 48 IPOs that raised $2 bn, up 8 percent and 55 percent from a year ago, with industrials dominating the market in terms of the number of deals, followed by real estate, media and entertainment, and consumer staples.
In the first half in Malaysia, the LEAP platform, which lists small and medium-sized companies, saw the biggest volume of IPOs at 14, raising a total of $309 mn.
However, Singapore dominated the regional IPO market in the first half of the year in terms of the amount raised at $1.2 bn for eight IPOs.
Thailand’s benchmark stock index, and its Market for Alternative Investment saw nine IPOs that raised $265 mn. Indonesia accounted for the highest deal number among ASEAN exchanges in the first half, or 35 percent of regional volume, and 10 percent by proceeds.