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Global IPOs expected to 'take off' in 2017 after political uncertainty held back activity

Should you invest in an emerging market IPO?

The market for initial public offerings has had a year it would rather forget as it tried to deal with global political uncertainty, but a new report estimates that a strong bounce-back in activity is expected in 2017.

"Although global IPO (initial public offering) activity in 2016 will likely lag behind 2015 levels, the outlook for 2017 is positive due to improving economic fundamentals, high valuations and lower volatility which will support IPO sentiment," a new report by audit firm EY said on Wednesday.

The company's quarterly EY Global IPO Trends report said a return to the record levels of activity in 2014 "may be a stretch," but expected activity next year to surpass 2015. It said that IPO activity in emerging markets continues to gather pace with options on alternative financing remaining limited.

China is also expected to see a higher levels of flotations as the country's market regulator looks to clear the pipeline by approving bigger deals now that equity markets have stabilized, according to EY.

NYSE president Tom Farley (R) celebrates with Japan's Line Corp. CFO In Joon Hwang (2nd L) and Chief Global Officer Jungho Shin (middle) and Chief Strategy and Marketing Officer Jun Masuda (2nd R) during the company's IPO on the floor of the New York Stock Exchange, July 14, 2016.
Brendan McDermid | Reuters

"In developed markets, some companies have hit the pause button and are refocusing their energies on preparing for 2017," the report added.

The report was published on the same day as the lPO of Postal Savings Bank of China (PSBC), the world's largest initial public offering in two years. And perhaps underlining the weak sentiment noted by EY, shares of the company were only narrowly higher than their IPO price, which Reuters reported was itself at the bottom of its marketing range.

EY estimates that cross border listings - the listing of a company's shares on a different exchange than its original - are actually at historic lows. Total deal volumes between January-September were down by 23 percent for the same period last year and the proceeds of these deals dell 39 percent.

Jackie Kelley, EY Americas IPO leader, said most U.S. private companies and financial investors were adopting a "wait-and-see strategy."

"With levels of private capital still at all-time highs and multi-tracking baked into corporate strategy, business leaders and financial sponsors are focused on getting set for 2017 when political and interest rate uncertainty are likely resolved by year-end and conditions will be supportive," she said in the press release.