(The) stock markets are at a difficult time because the natural competitor for attracting flows is the interest rate market.”
José Oriol Bosch, general director of the BMV.
The banking crisis was one more element that added to the “bad streak” in the world market for Initial Public Offerings (IPO) during the first quarter of this year.
In the period, a total of 299 companies were registered debuting on the Stock Market, an 8% lower number when compared to the first three months of 2022. Regarding the amount raised, the fall was stronger. The companies obtained 61% less capital than what was reported in the first quarter of last year, which amounted to 21.5 billion dollars, according to data from the global consultancy EY.
In Latin America, between January and March of this year, barely one IPO was registered, in Brazil, while in Mexico the market continued to be closed for another quarter.
The last company debuting on the Mexican Stock Exchange (BMV) was Grupo México Transporte, in November 2017. While on the Institutional Stock Exchange (Biva), Cox Energy placed its shares in July 2020.
Throughout the Americas region, 40 listings were recorded in the first quarter of 2023 for an amount of 2.6 billion dollars, 11 and 9% more, respectively, when compared to the same months in 2022. In the United States, 31 were registered IPO, as Canada saw its largest Initial Public Offering since May 2022, for more than $100 million.
José Oriol Bosch, general director of the BMV, commented that now the “stock markets are in a difficult moment because the natural competitor to attract flows is the interest rate market. With higher rates in the world, the stock market is less attractive”.
He explained that when the monetary policy of the central banks begins to moderate, the flows will begin to move towards the stock market.
“The BMV has been resilient, it has held up better than other exchanges. In the year it has risen 13.03% ”, she maintained.
For its part, in the Asia-Pacific region the number of IPOs fell 6% and the resources raised fell to 70%, which meant 175 IPOs and 12.7 billion in revenues in the quarter.
“Asia-Pacific adopted a wait-and-see attitude as investors stayed dry and looked for further indicators of a market recovery,” said Paul Go, EY Global IPO leader.
On the stock markets of Europe, the Middle East, India and Africa, 84 IPOs were launched for 6.2 billion dollars, a difference of 19 and 36%, respectively, compared to the first quarter of 2022.
no surprises
The negative performance of the IPO market is not surprising, specialists said, because low activity was anticipated and little “appetite” of companies going to the stock market, since it was the same trend observed in recent quarters due to high inflation, the rising interest rates and fears of a global recession. All of this increased risk aversion and steered investments away from equities.
But there was one more element that discouraged IPOs in the world: the uncertainty exacerbated by the bankruptcy of the regional banks of the United States (Silicon Valley Bank, First Republic Bank and Signature Bank), as well as the Credit Suisse case, which caused fear of a global systemic contagion and made it difficult for companies to go public.
“The first quarter was another negative period amid rising interest rates, a tepid stock market, entrenched inflation, unexpected global growth and banking sector turbulence,” said Paul Go.
This was reflected in the volatility index (VIX) which reached a maximum of 26.52 points on March 13, after the bankruptcy announcement of the banks in the United States, which were later rescued.
During the first quarter, the VIX fell 12.29 percent. When it exceeds 20 points, this indicator, also known as “fear”, reflects highly volatile market conditions.
“The IPO stream started at a decent pace but was unable to pick up after the February pause as hawkish signals from the Federal Reserve, renewed recession fears, and turmoil within the banking industry caused a surge in the volatility,” said Bill Smith, co-founder and chief executive of IPO research firm Renaissance Capital.
But despite the constant uncertainty in the economic and geopolitical environment, hope remains for a turnaround towards the end of this year for this market, considered the EY Global IPO leader.
“Despite the unforgiving economic and geopolitical backdrop, there is light on the horizon, with inflation spiking, energy prices weakening and China’s economy recovering, businesses expect the stock market to stabilize and recover,” he said.
