Marketwatch: Investors hoping to pounce on summer IPOs may be out of luck. Here’s why.
By Clara Linnane, Marketwatch.com
‘Rising interest rates are poison for growth stocks,’ says IPOX Founder Josef Schuster
The U.S. initial public offering market is staring down another slow week with just one small deal on tap, capping a period of little-to-zero activity as investors eye volatile secondary markets amid high inflation, supply-chain snags and a war in Europe.
There were just seven IPOs in May that raised an aggregate $1.1 billion to mark the slowest month for new deals in more than five years, according to Bill Smith, co-Founder and Chief Executive of Renaissance Capital, a provider of IPO-focused ETFs and of institutional research.
The typical flurry of deals that tend to come after the Memorial Day weekend failed to materialize with just Hong Kong-based online brokerage Zhong Yang Financial Group TOP, +1.88% coming to market last week. That deal priced at the low end of its range to raise $25 million at a valuation of $175 million.
“The big macro overhang is rising interest rates, which are really poison for growth stocks,” Josef Schuster, founder of IPOX Schuster LLC and chief architect of the IPOX Indexes, told MarketWatch.
“You can see today that the market tried to hang in but then yields went up and that’s the big overhang that needs to be resolved. That won’t happen until the Fed is done taking action.”
The IPO market is also being hurt by the poor returns stemming from last year’s bumper crop of deals, said Shuster. More than 1,000 new companies listed shares on U.S. exchanges in 2021 to raise $315 billion, according to data from Dealogic.
Many of those deals are now floundering causing investors to lose money and shy away from new offerings.
The pre-IPO market, meanwhile, has swept up billions of dollars that’s now stuck as valuations are being questioned amid the wealth destruction in the technology sector. (The pre-IPO market allows employees and accredited investors to trade shares from privately held companies that are preparing to go public.)
