Geopolitical uncertainties and trade concerns are clouding the IPO landscape in 2018

  • Ongoing geopolitical uncertainties and trade issues continue to dampen investor enthusiasm for initial public offerings (IPOs), according to the latest research by consultancy firm EY.
  • Looking at latest global trends affecting IPO markets, EY said ongoing geopolitical uncertainties and trade issues continue to dampen investor enthusiasm, resulting in the number of IPOs in the first nine months of 2018 falling to 1,000 globally.

Ongoing geopolitical uncertainties and trade issues continue to dampen investor enthusiasm for initial public offerings (IPOs), according to the latest research by consultancy firm EY.

Looking at latest global trends affecting IPO markets, EY said ongoing geopolitical uncertainties and trade issues continue to dampen investor enthusiasm, resulting in the number of IPOs in the first nine months of 2018 falling to 1,000 globally.

There has been an 18 percent decrease in the number of IPOs in the first nine months of the year, EY said in the report published Tuesday, compared to the same period in 2017. The proceeds generated by offerings so far this year was higher than usual, however.

Nick Woodman, founder and chief executive officer of GoPro Inc., center, cheers while ringing the opening bell for the release of the company's IPO at the Nasdaq MarketSite in New York, U.S., on Thursday, June 26, 2014. 
Victor J. Blue | Bloomberg | Getty Images
Nick Woodman, founder and chief executive officer of GoPro Inc., center, cheers while ringing the opening bell for the release of the company's IPO at the Nasdaq MarketSite in New York, U.S., on Thursday, June 26, 2014. 

"However, despite this slowdown, year-to-date 2018 (IPO) activity remained above the 10-year average with listings across the globe raising $145.1 billion, a 9 percent increase year-on-year," EY said in a report published Tuesday.

An initial public offering — or IPO as it is most commonly called — is the process by which companies go from private to public and sell shares in their firm on a stock exchange. IPOs are essentially a way for companies to raise funds.

The IPO outlook for the fourth quarter looked positive, Martin Steinbach, EY's global and EMEIA leader, told CNBC on Tuesday.

"Sentiment is still quite good, we see positive first day pops (positive first days of trade after an IPO) a good experience on the investor side with the IPO. Also we see an outperformance of IPOs compared to main stock exchange indices so all this creates a positive environment so we are quite optimistic for the fourth quarter," Steinbach told CNBC's "Squawk Box Europe".

He noted that investor concerns over trade between China and the U.S. could dampen enthusiasm for public offerings.

"I think the reasons why we have the global IPO slowdown is the ongoing geopolitical uncertainties and tensions which dampened investor enthusiasm but there's still a full pipeline of IPOs coming to market."

Believing in unicorns (and China)

The public offering of the world's largest telecoms tower operator, China Tower, in August remains the largest IPO so far in 2018.

The listing on the Hong Kong Stock Exchange (HKSE) raised $6.9 billion making it the largest IPO in two years, since the Hong Kong float of the Postal Savings Bank of China in 2016 that was worth $7.6 billion.

It is followed by tech giant Xiaomi's $5.4 billion offering, again on the Hong Kong exchange, in July and Siemens Healthineers offering, which raised 5.1 billion on the Deutsche Borse in March.

The technology, industrials and health care sectors were the most prolific producers of IPOs globally year-to-date in 2018, EY said, with the sectors together accounting for 468 IPOs (or 47 percent of global IPO by deal numbers) and raising $62.9 billion altogether.

The growing IPOs of unicorns – privately held tech companies with $1 billion market valuations - had also pushed the proceeds of global IPOs up year to date. Spotify is an example of a "unicorn" that went public in April. Unlike a traditional IPO, Spotify conducted a direct listing, meaning no banks underwrote the offering and no price was set ahead of the debut.

EY said that an increase in unicorn IPOs in the third quarter of 2018 pushed year-to-date global IPO proceeds 9 percent above the same period last year.

The top three of the biggest 10 IPOs of the third quarter 2018 have all been in China and all were unicorns, listing with a market valuation over $1 billion.

China Tower's IPO in August, followed by tech giant Xiaomi's listing in July and Meituan Dianping (an online food delivery-to-ticketing services platform's) September offering, which raised around $4 billion, are in the top three, listed in order of size of proceeds.

Germany's Siemens offering was the only European entry in the top 10 IPOs, year to date, and no European company's IPO featured in the top 10 list for the third quarter. Steinbach was surprised at that.

"While the EMEIA IPO market felt the force of geopolitical tensions, trade issues between the U.S., EU and China, and the looming exit of the U.K. from the EU, it was a surprise to see no large deals from any continental Europe stock exchanges in the 2018," Steinbach said in the report.

"Yet, while IPO activity may have been lower than this time last year, investor appetite stood strong as first-day pops (on the first day of trading) and post-IPO performance exceeded expectations."