Risk appetite remains healthy in Singapore

The Ernst & Young report on global IPO landscape piqued our interest, so we ran our analysis using Bloomberg data.

The global IPO landscape indicates there remains appetite for risky assets. The Q3 deal size this year has been 319 deals valued at $49 billion. Though down 62% from Q2, the landscape is looking brighter compared to a year ago, with capital up by 21 times, from $2 billion.

The US dominates

While the US dominates with $30.7 billion and 126 deals, Asia Pacific makes up 22% of the Q3 capital-raising activity, with China leading the region with $2.4 billion. Singapore had a surprisingly strong Q3, as a close third with $2 billion and six deals.

Looking at IPO performance for the year, Europe outperforms with an aggregate return of 18%, followed by Asia Pacific at 16%, LATAM at 15% and the US at 14%. While Singapore’s IPO as a whole has underperformed this year, the excitement is the underwriter’s ability to attract demand from both institutional and retail investors.

While the previous investment theme favoured by the local investors has been REIT, the expectation of a rising interest rate environment means that there is a need to diversify into other sectors. The low entry barrier, offer price at slightly above $1 or below, and resources-based exposure of these companies, such as basic materials and energy, contribute to the success stories.

More winners than losers

While it is not a sure win with every IPO here, the winners outnumber the losers. 15 out of 31 of the companies are trading at above the IPO price, 35% (11 of them) are in negative territory and the rest are at pending stage. In the environment where deposit rates are close to zero and the property market in Singapore is at all-time high, retail investors struggle to find affordable investment opportunities.

However, the future performance of these companies and IPOs coming into the market will be determined largely by the macroeconomic landscape of larger economies such as the US, China and Europe.

In recent weeks, it became clear that investors needed time to adjust to the Fed’s decision. It dawned on market participants that the decision was right at that time despite criticisms. This week’s economic growth in the US is patchy and showed underlying weakness. Durable goods barely grew in August, up 0.1%.

Meanwhile housing, which has been the main drag in the economy, is hitting a snag in the recovery, with new home prices continuing to fall since May. Pending home sales fell 1.6% in August, which means fewer Americans are buying previously owned homes. Tonight’s personal income data will provide further clues on the status of US household wealth.

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