Roundup: U.S. IPO market flourishes in 2013, anticipates another dynamic year in 2014
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E-mail Xinhua, December 28, 2013
The U.S. initial public offering (IPO) market posted its best year in more than a decade, and the dynamism is expected to carry on in 2014, market experts told Xinhua here on Friday.
2013 was the most active year for the U.S. IPO market since 2000, according to a recent research report by Renaissance Capital, a Greenwich, Connecticut-based research and investment firm that focuses on IPOs.
Against a favorable backdrop marked by a rising stock market, low interest rates, reduced volatility and increased risk tolerance among investors, a total of 222 companies went public and raised 55 billion U.S. dollars this year, representing a 73 percent and a 29 percent increase from that of the 2012 levels, respectively, the report showed.
"After four long years of recovery, the U.S. IPO market finally returned to the historical norm of around 200 annual deals despite the Fed's hints at tapering and dysfunction in the U.S. government," said the report.
"I think it's sort of the right place and the right time this year with regards to the IPOs," said Mark Newton, chief technical analyst at Greywolf Execution Partners Inc. "That happened because there have been relatively no macro items of concern that we saw from 2010 to 2012."
Newton said three-quarters of the stocks that were listed this year finished up above their IPO prices. "So when you see a strongly trending bull market that goes higher, you see a lot more companies are at ease doing IPOs knowing that their companies can go public and likely rise in price. That's what they want," he said.
In terms of the proceeds raised, the energy, financial and health care sectors were the most active in the 2013 U.S. IPO market, the report revealed.
Jack Y. Liu, senior vice president at Chardan Capital Markets, a New York-based investment bank, told Xinhua that the flourishing U.S. IPO market this year is reflective of the overall conditions in the U.S. economy and markets, which benefited from a strong recovery in the real estate and jobs markets.
Another reason that contributed to the booming U.S. IPO market this year is that investors are less cautious and have greater risk appetite to invest in the IPO market, particularly so in sectors like technology, internet and bio-pharmacy, Liu said.
Moreover, in a low yield rate environment, the U.S. IPO market looks more attractive for investors seeking better returns.
Riding the strong bullish trend in the U.S. equity market this year, IPO companies' performances beat benchmark indices, with an average return of 35 percent, the Renaissance Capital report said. That compared to a 29-percent gain on the S&P 500 year to date and a 26-percent gain on the Dow Jones Industrial Average.
The U.S. IPO market is still not expensive despite the fact that major stock indices repeatedly setting new all-time highs this year, as companies are producing more profits and revenues than before the financial crisis, Liu said.
On a valuation basis, a booming U.S. IPO market could help stock prices to rationalize because increased IPO supplies would lower the level of stock premium, he added.
But Liu also warned of bubble risks in certain sectors of the U.S. IPO market, such as technology and internet companies, whose stock prices were overpriced when taking into account the company's real earnings ability.
"2013 could be too good a year for the IPO market," Liu said. Just taking the fourth quarter for example, statistically a weak quarter for IPOs, it is anything but weak, he noted.
According to the latest PwC U.S. IPO Watch release last Thursday, IPO volume and total proceeds raised peaked during the fourth quarter of 2013, exceeding each prior quarter during the year.
"Demand for IPOs continued to build during the fourth quarter, supporting the momentum as we enter 2014," said Henri Leveque, leader of PwC's U.S. Capital Markets and Accounting Advisory Services, in the report.
"The environment for IPOs has remained highly accommodative and we expect the new issuance window to remain open as we head into 2014," Leveque added.
It's worth noting that 2013 is also a booming year for Chinese company IPOs in the U.S. market.
Although there is not a very broader population investing in U.S.-listed Chinese stocks, but "that will be a logical place to invest knowing that China in the long run will be a viable partner and a player in global markets," Newton said. "People are trying to get in at the very initial stage of this happening."
This year, a total of eight Chinese companies made their trading debut in U.S. markets. If including the IPO of China's Dalian Wanda Group-controlled AMC Entertainment Holdings, a movie theater chain operating in the United States, the number amounts to nine, compared to just two Chinese IPOs in 2012.
Chinese companies listing in the U.S. staged a comeback in the second half of this year. The eight U.S.-listed Chinese companies raised about 800 million dollars and produced a whopping average return of 61 percent, according to Renaissance Capital's report.
All eight Chinese companies ended the year in positive territory with the exception of LightInTheBox, which traded up 22 percent on the first day but has since plunged after reporting two disappointing quarters of earnings results, the Renaissance Capital report showed.
The most anticipated Chinese company's IPO in the U.S. market next year will be e-commerce company Alibaba Group Holding Ltd. The company is expected to carry out its blockbuster IPO in the first half of 2014 but has not yet decided to list its shares in the Hong Kong or the U.S. market.
Looking ahead, Renaissance Capital anticipates another dynamic and healthy year for the U.S. IPO market in 2014, as positive investor sentiment, low volatility levels and improving economic conditions set the stage for another strong year for U.S. stocks.
However, Newton believes it is going to be "tough" for the IPO market to keep up with the pace of this year. "I think IPOs won't be as large next year and the year after," he said.
"The economy has strengthened, but I'm not sure it will necessarily bring more IPOs to the market," Newton said, "particularly if you have any sort of correction in the spring and the summer, that would certainly set the tone for the year for IPOs."
As for the prospect of Chinese IPOs in the U.S. market in 2014, Liu said he is "very optimistic."
Allegations of accounting fraud by short-sellers of U.S.-listed Chinese companies between 2010 and 2011 brought new Chinese company IPOs to a halt, but "it has been proved that the U.S. IPO market has reopened its door to Chinese companies in 2013, thus any qualified Chinese company that hasn't listed in the U.S. simply due to market concerns should be actively preparing for their IPOs," Liu said. Endi
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