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Declining Inflation and Potential Interest Rate Cuts in 2024 Could Spark IPO Market Revival

INVESTINGDeclining Inflation and Potential Interest Rate Cuts in 2024 Could Spark IPO Market Revival

In 2023, the number of initial public offerings (IPOs) worldwide dropped by 8 percent, with total revenues from this sector declining by one-third (33 percent). However, a growth was recorded in both Americas – by 15 percent and 155 percent, respectively. Meanwhile, in the Asia Pacific region, these figures fell by 18 percent and 44 percent, respectively. On the other hand, the EMEIA region saw a 7 percent rise in the total number of new IPOs, but revenues associated with them fell by 39 percent. The ongoing decrease in global inflation and potential interest rate cuts in 2024 could attract investors back to the IPO path due to improved liquidity in the markets and the prospect of gaining expected return on investment. This confidence could only be undermined by persistent geopolitical instability – as per the findings of the EY Global IPO Trends Q4 2023. The full report is available on the EY IPO Trends Q4 2023 | EY Poland website.

The landscape of the global IPO market underwent changes last year. The improvement in sentiments in western markets was a counterbalance to the cooling off in China. Overall, large offers proved to be unattractive, and mainly small companies from emerging markets appeared on the stock exchanges. The global IPO market ended the year with 1,298 transactions that raised capital amounting to 123.2 billion USD. In comparison to the previous year, revenues from IPOs were about one third lower. However, transaction volumes increased in both Americas and the EMEIA region. The significant impact on the smaller number of IPOs and their large value decline in 2023 was due to the extremely aggressive monetary policy conducted by almost all central banks worldwide. Both in the United States and Europe, 10 or more interest rate hikes have been recorded since 2022, leading to a decline in IPO volume in the largest markets. Also noteworthy is the wave of significant stock market debuts that hit the market in September 2023 returned disappointing market results, reflecting the persistent mismatch of equity valuation expectations between issuers and investors. This prompted some companies to postpone the completion of the IPO process.

Interest for IPO debut is increasing with a growing investor enthusiasm. However, many companies are still deferring decisions, waiting for an improvement in the macroeconomic situation, softening monetary policies, improved liquidity, geopolitical stability, and overall better market conditions. Therefore, despite heightened activity and growing interest in IPOs, companies are very cautious, carefully analyzing market signals and waiting for the best moment to make the most out of the opportunities 2024 might bring. Anna Zaremba, EY Partner, commented on the situation.

The current decline in global inflation and anticipated associated interest rate cuts will increase activity in the financial markets due to positive prospects for expected return on investment. Softening monetary policy should encourage investors to initiate new IPOs especially since even smaller transactions are recording increasingly better results. Therefore, many governments are acting to encourage companies to join the stock exchange, especially in high-growth economies. However, a lot depends on improving the macroeconomic environment. Entrepreneurs are anxiously waiting for more conducive market conditions that will give them better opportunities to successfully complete the IPO process. Those planning to enter the stock exchange in 2024 will need to be well-prepared, taking into account other factors such as: government regulations, economic resurgence, escalating tensions and conflicts, the ESG agenda, and the global supply chain. They should also consider all alternative options and other financing methods, including even the sale of their businesses.

As for the methodology of the study, EY analyzed IPO-related data for 2023 based on information provided by Dealogic, Capital IQ, Wind, SPACInsider, and EY.

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