The relative state of Initial Public Offering (IPO) transactions is seen by some analysts as presenting a measure of how well individual markets are performing. Are businesses keen to float on the stock market? Do investors feel confident enough to plunge their own capital into such businesses?
It has not gone unnoticed that IPO levels have dropped significantly in many Eastern European markets in recent months. From the Ukraine to the Czech Republic, it seems like there is a waning appetite for such flotations. What lies behind the trend?
Wider economic uncertainties are certainly not helpful in this context. While investors fret about the future direction of countries and the region as a whole, they may well feel that this is not be best time to invest. Conditions are unlikely to be conducive to strong performance from individual entrepreneurs either. There may be an element here of new businesses struggling to emerge from the shadows.
A global economy means that IPOs aren’t just about local investors, of course. For those examining options on a broad scale, Eastern European transactions may represent too much of a risk right now. Although there’s always that balance between risk and reward, many evidently feel that the scales have been tipped too far in one direction here.
The state of the Russian economy continues to give cause for concern and sanctions are proving limiting, in terms of economic growth. There is also evidence that the impact here is not only limited to Russia: perhaps unsurprisingly, there are knock-on effects for trading partners elsewhere, particularly within Eastern Europe.
At present, equity valuations tend to be low. Some companies will have responded to this situation by looking to delay IPOs, believing that valuations will increase once the current circumstances subside. There are certainly many anxious glances in the direction of the Ukraine at the moment, with senior managers in many businesses hoping to see greater stability in the medium-term.
Could a few large IPOs trigger others to follow suit? The recent flotation of Wizz Air, the Hungarian budget airline, has given some cause for optimism. Could it represent a sign of confidence returning to the markets? It’s probably too early to tell, but there seems little chance of a rapid recovery in IPO levels for the most part.
Consideration also needs to be given to the privatisation process that has been ongoing in some countries. Taking Poland as an obvious example, recent years have seen Polish governments looking to privatise on a large scale. There may simply be little left to privatise, reducing the potential for this as a source of IPOs. The same is true in Romania, where it’s been noted that the sale of assets has certainly reduced in recent months.
What does the future hold? That’s always the question that most investors want to know the answer to. Looking into a crystal ball, it would appear that the most likely answer here is that the uncertainty that surrounds the economies of the region means that there doesn’t seem to be much chance of IPO levels increasing at a significant rate during the course of the coming months. If the Ukraine situation, in particular, starts to settle down, then that may well present cause for economic optimism.