WORLD

Global IPO mop-up hits record in 2021 and fans fear of a bubble

Global initial public offers (IPOs) have smashed their previous record this year, propelled by a blank-check boom and companies cashing in on high valuations. With six weeks to go, about 2,850 businesses and Special Purpose Acquisition Companies (SPACs) have raised more than $600 billion in IPOs, leaving the records for both deal count and proceeds reached in 2007 in the dust, according to data compiled by the Bloomberg. 


Leading the pack is electric-truck startup Rivian Automotive, which raised nearly $12 billion in New York this month. Asia’s biggest was China Telecom’s 54 billion-yuan ($8.4 billion) IPO in August, while Polish parcel-locker provider InPost seized the top spot in Europe with its 2.8 billion-euro ($3.2 billion) Amsterdam listing in January. 


These companies took advantage of record-high stock prices as central bank support kept investors flush with cash. And the economic recovery from the pandemic along with stimulus measures helped boost corporate earnings.


Still, it has not all been smooth sailing. Regulatory scrutiny has cooled the SPAC craze, which reached a fever pitch early this year. China’s crackdown on technology companies over the summer sent shockwaves through global markets, halting the record rush of Chinese listings in the US and casting a shadow over Hong Kong’s IPO market. 


“We are moving from a perfect market for IPOs with plenty of liquidity and deals performing well to a more normal environment, where investors are more selective,” said Gareth McCartney, the global co-head of equity capital markets at the UBS Group. 


A retail-buying frenzy that sent stock markets on a rollercoaster ride this year, along with investors’ appetite for hot sectors, has fuelled some dizzying post-listing pops. Rivian, which has yet to generate revenue, more than doubled in its first few sessions, briefly surpassing Volkswagen in market value, while Korea’s SK Bioscience surged by 160 per cent in its debut. 


These outsized gains have fanned worries of a bubble. The S&P 500 Index is trading at more than 21 times projected earnings in the next year, well above its 10-year average. Stocks are near their most expensive level since the dot-com bubble of 2000. “As monetary stimulus programmes are scaled back, and if global growth slows sharply, markets could be heading for a correction,” notes Susannah Streeter, a senior analyst of Hargreaves Lansdown. “Over-valued companies will feel the pain much faster than others,” she adds.

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