When UK-based chip designer Arm went public earlier this month, raising $65 billion on the Nasdaq in a matter of hours, hopes swirled among investors that the global market for initial public offerings might be coming back to life after an 18-month slump.
Since then, shares in Arm (ARM) haven't really taken off. After an initial surge, the stock has fallen back to trade at $55 apiece, close to its $51 issue price. Days after Arm's IPO, grocery delivery firm Instacart (CART) went public. Its Nasdaq-listed shares also soared when they started trading, but have since fallen below their issue price of $30.
The lukewarm reception for those deals suggests Wall Street may still be nursing a hangover from the collapse of a post-pandemic IPO bubble in 2022. Lesser-known markets around the world are doing better, as they increasingly provide an alternative for local or regional companies looking to tap equity investors for the first time.
In 2023, for the second year running, the United States has fallen behind mainland China as the world's biggest single IPO market, based on the amount of money raised, according to data provider Dealogic.
Stock exchanges in emerging economies account for three-quarters of the money raised by companies via IPOs worldwide this year — up from an average of 66% over the previous five years, according to a report released last week by accounting firm EY. They also attracted 77% of all IPOs, up from 61%.
New players Turkey and Romania have joined the "thriving" IPO scene in Indonesia, Malaysia and India, and seven of the world's nine "mega" IPOs — those raising at least $1 billion — were on the exchanges of emerging markets, EY noted.
There's a simple explanation. "Economic growth is there," George Chan, the firm's global IPO leader, told CNN.
Center stage
Indonesia is a striking case in point.
The Southeast-Asian country of 274 million people overtook Hong Kong this year — long a top IPO destination — for the first time in nearly three decades.
It is now the world's fifth-biggest IPO market when measured by the amount of money raised, totaling $3.5 billion so far this year, according to Dealogic. That puts it behind only China, the United States, India and the United Arab Emirates.
Indonesia punches above its weight because it has something that everybody wants: Vast deposits of the metals needed to make batteries for electric vehicles and other minerals vital for energy transition, such as nickel, copper and cobalt.
The metal, steel and mining industries account for almost two-thirds of the total value of the country's IPO deals so far this year, Dealogic data shows.
Chan thinks Indonesia's transformation into an IPO powerhouse will start to attract companies from overseas.
"Once you've created a market sentiment for a particular industry, other market players, even though they're not in Indonesia, would probably go to Jakarta [to list]," he said. "Because the investors there understand the business."
Smaller exchanges elsewhere are also getting their moment in the sun.
Neither Frankfurt nor Paris hosted Europe's biggest IPO of 2023. That honor went to the Bucharest Stock Exchange, when Romanian utility Hidroelectrica went public in July with a deal valued at $2 billion, making it the fourth-largest listing the world has seen so far this year.
Further south, the year-to-date value of IPO deals on Turkey's Borsa Istanbul has hit $2.3 billion, more than double the value of deals on UK exchanges. Driving that performance, according to Chan, is a surge in activity by Turkish retail investors seeking returns in equities as high inflation erodes their spending power.
'Higher for longer'
Bigger IPO markets have failed to launch this year for a variety of reasons.
Hong Kong has been held back by poor valuations, Chan said, while a "pipeline of good companies" are prevented from listing on exchanges on China's mainland because of regulatory restrictions. Those should lift within the next six to 12 months, he adds.
Listings in Europe and the United States are hamstrung by high interest rates, which have raised returns on safe assets such as government bonds and dented investors' appetite for riskier bets.
Tech companies — which account for almost 40% of the total value of the US IPO market this year, per Dealogic — are particularly sensitive to hikes in the cost of borrowing as investors have less incentive to take a chance on firms that can take years to turn a profit.
Listings on US exchanges have been valued at $20 billion so far this year, down 5% from 2022, and only a fraction of the $315 billion notched in 2021 and the $168 billion in 2020, Dealogic data shows.
Globally, 2021 was the biggest year on record for IPOs by both the number of listings and the total value of deals, according to Dealogic. A heady cocktail of rock-bottom interest rates and a market awash in pandemic-era government stimulus drove that performance.
Kevin Gordon, a senior investment strategist at Charles Schwab, thinks the "dust is still settling" after that bubble burst last year.
The crash was partly a reflection of just how high the market had flown but also of less willingness among investors to finance stock purchases when rising borrowing costs made that much more expensive.
Investors are bracing for rates to stay "higher for longer" after the Federal Reserve signaled last month that it could hike again this year, and expected to make fewer rate cuts in 2024 than it had initially indicated.
"The willingness to back down to or near zero interest rates is very low from the Fed," Gordon told CNN. "That inherently changes the game and the landscape for the IPO market."
Still, investor sentiment is improving in major Western economies, EY said in its report, noting that US exchanges had attracted more IPOs by overseas companies than any other country this year.
Germany's Birkenstock is one such firm. The iconic shoemaker announced Monday that it aimed to raise as much as $1.58 billion when it lists on the New York Stock Exchange.
Not a 'pretty picture'
The United Kingdom's IPO market is in more profound trouble, and the loss of the Arm IPO to New York stung.
In 2022, the country dropped out of the top 10 global IPO destinations, and has stayed out so far this year, Samuel Kerr, senior equity capital markets editor at Dealogic, told CNN.
That has only happened once before in the past 20 years, in 2009, immediately after the global financial crisis.
UK capital markets have suffered as big tech firms have lured a generation of investors to Wall Street, and as the country's own pension funds have slashed their exposure to local stocks.
Brexit and years of political turmoil have also undermined London's status as the center of European finance, and hurt the UK's reputation among investors.
Kerr attributes the decline in the UK's IPO scene partly to Brexit but also to the growing strength of stock exchanges in emerging markets.
"Companies that are now choosing to list on their domestic exchanges would historically have been the sort of issuers that once chose to list in London," he told CNN.
The UK's IPO data "certainly don't present a pretty picture," he said.
Correction: An earlier version of this article gave incorrect rankings of the world's top IPO markets and misstated the value of deals on US exchanges in the last three years.
