Cautious optimism

PUBLISHED : Tuesday, 10 July, 2012, 12:00am
UPDATED : Tuesday, 10 July, 2012, 12:00am


Companies globally saw a second-quarter improvement in the markets, thus helping initial public offerings (IPOs).

According to Ernst & Young, global IPO activity rose in the second quarter, with 206 deals, raising US$41.8 billion, an increase of 5 per cent from the first quarter.

Ernst & Young says that in terms of capital raised, it is 141 per cent higher than in the first quarter.

'Second quarter results show relative optimism for raising capital,' says Dilys Chau, assurance partner at Ernst & Young.

'However, this optimism is in certain markets and capital market activity continues to be hampered by lack of investor confidence and economic uncertainty.

'Balanced monetary policy in the developed and emerging economies will be important for investors' and issuers' confidence to return.'

In the second quarter, overall capital raised was boosted by Facebook's US$16 billion IPO, which made up 38 per cent of the quarter's total.

Even without this, overall global IPO activity in the second quarter was 49 per cent higher in terms of capital raised compared to the first quarter.

Locally, Ernst & Young says that in the first half, the Hong Kong stock exchange (HKEx) raised US$4 billion over 31 deals.

The Shenzhen Stock Exchange (SZSE), including the small and medium-sized enterprises board and the ChiNext board, recorded 88 deals with US$7.7 billion in capital raised in the first half of this year.

The Shanghai Stock Exchange (SSE) raised US$3.8 billion over 16 deals.

There were eight deals on the Taiwan Stock Exchange, with capital raised up to US$242 million.

'Both the number of deals and the funds raised in the HKEx, SZSE and SSE in the first half of 2012 are less than the corresponding period last year,' says Jacky Lai, assurance partner at Ernst & Young. Chinese IPO activity has slowed down due to the uncertainty of the global economy and the sovereign debt crisis in Europe.

'There was no mega IPO in Hong Kong in the past six months. The largest deal in the first half of 2012 was Haitong Securities raising US$1.9 billion.

'The A-share market on the mainland remained active in the first half of 2012 with 104 deals. However, total funds raised dropped 58 per cent from the first half of 2011.'

Chau says that the pipeline of companies waiting to go public remains high. Issuers and investors are being far more cautious, particularly in light of the difficult market conditions.

They are waiting for the global market to stabilise and concerns over global growth to dissipate before they decide to become active again.