US IPO Volume Plummets 95% in First Half of This Year
87% of Last Year's Listed Companies Fall Below Offering Price
[Asia Economy Reporter Yujin Cho] "From the largest boom in history to the largest recession in history"
Last year, the global initial public offering (IPO) market enjoyed an unprecedented boom but is now plunging into an endless slump. The decline was even greater in the U.S. market, which led the stock investment boom with SPAC (Special Purpose Acquisition Company) investments and meme culture. Due to high-intensity tightening policies by governments worldwide, global stock markets show no signs of recovery, leading to forecasts that the IPO market slump will continue this year and next year.
According to global accounting and consulting firms EY and Dealogic on the 26th (local time), the global IPO volume in the first half of this year was $95.4 billion (approximately 136.422 trillion KRW), a sharp 58% drop compared to the same period last year ($227.6 billion). During the same period, the U.S. IPO market size was $5 billion, a 95% decrease from $95 billion in the same period last year. The number of companies going public also fell by 46% globally and 73% in the U.S. market.
The Wall Street Journal (WSJ) reported that the IPO market is slowing down more than it has in the past decade. Last year, with continued money printing due to COVID-19, funds with nowhere else to go flooded the stock market, causing overheating from the beginning of the year. In particular, companies entering the stock market through SPACs led the IPO boom beyond traditional IPOs, and individual investors enthusiastically drove the craze by investing in SPACs with high capital gains.
However, as the COVID-19 pandemic ended, high-intensity tightening policies and inflation by governments worldwide dried up liquidity, causing investment sentiment to deteriorate rapidly. Additionally, the stock prices of companies listed on the stock market, including SPACs, have fallen sharply, deepening the IPO market slump. As a result, demand for IPOs is also decreasing.
According to WSJ, 87% of companies listed in the U.S. last year are currently trading below their offering price. The stock prices of U.S. health insurer Oscar Health and clothing rental company Rent the Runway have plunged 85% below their IPO prices, respectively. Online stock trading platform Robinhood and payment processor Marqeta have also dropped more than 70%, while restaurant operator Toast and online education company Coursera have halved compared to their offering prices.
This stock price weakness stands out even compared to the declines in major New York Stock Exchange indices. During the same period, the S&P 500 index, centered on large-cap stocks, fell 23% this year, and the tech-heavy Nasdaq index dropped 31%. On this day, the S&P 500 index fell 38.19 points (1.03%) from the previous close to 3,655.04, breaking the year's lowest record (3,666.77).
Mark Schwartz, EY's head of IPOs, explained, "The poor stock performance of IPO companies lowers investor confidence and negatively affects the market slump."
The background of this IPO market plunge lies in interest rate hikes and hyperinflation. CNBC reported, "With the financial investment market freezing due to interest rate and exchange rate impacts, investors are turning to safe assets instead of high-risk growth stocks." Given the unlikely prospect of an immediate shift to interest rate cuts, investors are expected to continue avoiding the IPO market.
Rachel Gering, head of the IPO division at EY's U.S. office, said in an interview with CNBC, "Currently, investors are risk-averse, which negatively impacts the IPO market slowdown." She added, "Investors who bet on growth last year are focusing more this year on investments that can guarantee stable returns."
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