False dawn? – Market rally could prove deceiving for Autumn deals

Data InsightECM Explorer 19 August

False dawn? – Market rally could prove deceiving for Autumn deals

Most of Europe’s equity capital markets are firmly shut as both buy and sell-side take in the summer sun, but some might be casting an eye at rising stocks in hopes of a pick-up once back to the office.

European and US stock markets have mounted a steady rally in the last four weeks, with Europe’s Stoxx 600 up over 10% from its most recent low at the beginning of July.

In the US, markets have performed even better and the CBOE’s Vix index, the most cited metric in discussions over market health, has traded below 20 for the first time in months.

 This plays well for EMEA equity capital markets which traditionally see a rush of deals starting from September as banks push their best IPOs of the second half and sellers try to dispose of any stock in the blocks market before the close of the year.

Traditionally, the busiest two quarters for EMEA ECM are the second and fourth quarters, due to the Easter and post-summer deal windows, particularly important for IPO issuance.

Given dire equity markets following Russia’s invasion of Ukraine in February, the second quarter of the year disappointed. But after four rallying weeks over summer surely there is hope that deal flow could come roaring back at year-end.

Sources speaking to ECM Explorer are reluctant though to put too much hope in rising markets just yet.

They point to low trading volumes as a factor distorting the picture, adding that there is not much conviction behind the equity raises. Bleak macroeconomic fundamentals are still weighing on many investors’ minds, one banker cautioned.

But if stock rises continue, a fear of missing out could drive investors back to market with an eye on ECM deals.

“No-one is convinced by the rally but that is sometimes the backdrop when it keeps going. While I am not sure anyone believes the fundamentals, you will have to start buying into it if it goes on,” an ECM investor said.

The investor expects perhaps “one or two” large IPO candidates to test the waters in autumn alongside some secondary sell-downs, mostly from corporates executing strategic disposals.

The news service has reported that both VW [ETR:VOW3] and ENI [BIT:ENI] have been eying the autumn as a listing window for the IPOs of car brand Porsche and Plenitude, ENI’s renewables and retail gas division. 

The investor added that the lift in markets had already opened the door for some ECM activity in the US in the last few weeks as well as some deals in Europe, most notably a SEK1.17bn (USD 114m) block of shares in Hemnet [STO:HEM] sold by General Atlantic on Monday, August 15.

Despite more benign underlying markets, the stock has suffered since the block, trading around 9.9% below the offer price on Wednesday morning. Whoever goes next, will wish for a better aftermarket performance.

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