Eastern European IPO trends

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.

Where next for Russia?

It’s been more than four weeks since our last post on the subject of growing uncertainty surrounding Russia and the Ukraine. Has anything become clear since?

In political terms, it seems that significant changes have been made. As was previously the case, it seems to us that this is not the place to ponder politics in great detail. However, what we can say is that there are still further changes to come. Until the situation in the Ukraine settles down, it’s hard to imagine a similar stabilisation within Russia’s financial markets.

The repercussions are likely to continue too: there are clearly implications here for neighbouring states, together with international relations. With accounts being frozen and threats being made from all sides, it seems unlikely that the situation will settle down any time soon.

Are we any further forward as a result? An observation here would be that markets rarely react well to such elements of uncertainty. This doesn’t mean that those investors with an ear to the ground will find it impossible to find value within such markets, but it undoubtedly means that we can expect to see increased levels of caution.

When it comes to our own focus on the approach taken by Nevsky Capital in such circumstances, there’s a desire here to learn from the tactics of professional investors. Many private investors are also likely to be following their lead, seeking to get an insight into what the future is likely to hold.

For Russia, it’s clear that many more changes can be expected. Judging the nature of those changes remains difficult and it may take bravery to step in to some investment opportunities right now. What we can say with real certainty, however, is that financial and political analysts will continue to monitor ongoing events. The next few months and years will undoubtedly provide some interesting news stories.

Volatile Russian markets

The recent headlines being made in the Ukraine are clearly of interest to those who wish to invest in Eastern Europe. It should be noted that this blog is certainly not the place for a discussion on the political merits of decisions that are being taken in that part of the world.

However, the financial ramifications are certainly of importance and it’s right that they should be given due consideration. After all, an understanding of what’s going on could lead to a greater insight on the investment opportunities that may be available.

As has been written elsewhere, one of the knock-on effects of the crisis has been the falling value of many shares on the Moscow stock exchange. Some analysts have attributed such falls to the sanctions that have been announced by a number of Western governments. Again, without looking too closely at the nature of such sanctions, it does seem reasonable to ask whether there is a need to consider the impact here on investors.

The future of the Ukraine

For those who are looking to invest directly in Ukrainian companies, there’s a high degree of uncertainty right now. Few people could claim to have an understanding of how the situation will resolve and what it will mean for businesses that are local to that area. What we do know, however, is that markets and investors rarely like a high degree of uncertainty.

Until the crisis reaches a point of resolution, it seems reasonable to expect that share prices will continue to fluctuate.

The impact on Russia

Much of the focus of the news headlines has understandable been on the people of the region and how their lives might be expected to change. Much analysis has been carried out on the Crimean region, in particular.

But what about the impact on Russia? Tumbling stock markets rarely lead to positive headlines and it might be expected that investors will flee, looking for alternative safe havens.

This undoubtedly provides an interesting situation for fund managers and others with expertise that is region-specific. For the most part, their expertise will mean that they will have been aware of what was brewing, well in advance of this coming to the attention of the wider public here in the UK. What that should mean is that they were already making investment decisions that took into account the amount of risk that was involved.

Conclusions

The biggest losers here, in purely financial terms, are likely to be amateur investors. While professionals may have had advance warning of the looming crisis, it’s to be expected that many amateur investors will have witnessed these events from afar, with a combination of surprise, outright shock and obvious concerns.

This is very much a live situation too. Until events settle down, it’s very difficult to know whether there will be a real long-term impact. For those who are reliant on professional Fund Managers, the hope is that those experts have done their research.

For those who are investing directly in the region, it’s time to look more closely at what’s going on, in order to allow the correct actions to be taken.