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The number of IPOs since the start of the year has reached highs reminiscent of the days before the internet bubble burst, CNN and Bloomberg calculated on Sunday. A boom linked to the pandemic, the outcome of which will depend on post-crisis management.
Uber’s Chinese competitor Didi is about to enter on the New York Stock Exchange this week. The group hopes to raise around four billion dollars on this occasion, which will allow it to be valued at more than 60 billion dollars – thus becoming the most important IPO since the beginning of the year.
But Didi’s announced arrival at the New York Stock Exchange is just the tree that hides the forest of the IPO boom in 2021. In the first six months of the year, there was $ 350 billion. raised worldwide by more than 1,100 companies that have made their debut on the financial markets, calculated the Bloomberg economic channel, Sunday June 27. More than 110 companies went public in the United States alone between April and June, adds CNN.
Money like it’s raining
“From Hong Kong to New York, the financial markets have been in turmoil for six months. We had not seen such a craze for IPOs since the end of the 1990s, just before the bursting of the internet bubble ”, confirms Aaron Arth, one of the managers of Goldman Sachs bank in Asia, interviewed. by Bloomberg.
This good stock market health may come as a surprise. “Generally, a year after the outbreak of a major crisis like that of Covid-19, we are witnessing the opposite trend. Thus, the IPO market had reached its all-time low in 2009, after the start of the subprime crisis, ”recalls Alexandre Baradez, head of market analysis for the financial consulting firm IG France.
The current tendency of entrepreneurs to take the stock market leap is another illustration of the very specific dynamics of financial markets during this pandemic. There was the irruption of individual investors with the GameStop affair, the frenzy for cryptocurrencies and crypto-art, investments in obscure financial objects like Spacs (acquisition companies with a specific purpose), and now the record breaking IPOs.
-> To read on France 24: The Spacs, these obscure objects of stock market desire
All these phenomena have a common origin: they have benefited “from the enormous quantities of liquidity injected by central banks into the economy to support activity during the pandemic”, underlines Alexandre Baradez. A plethora of funds that have allowed investors to increase stock market bets in all possible and imaginable sectors.
There are so many opportunities “that the banks on Wall Street are currently in lack of analysts to manage to follow everything”, assures Kevin Mahoney, head of banking activities for the New York financial consultancy firm Bay Street Advisors, interviewed by CNN.
As long as the indicators are still green
The IPO boom also has its own reasons for existence. First of all, this phenomenon “is driven by IPOs in the tech sector which has benefited greatly from the acceleration of the dematerialization of the economy”, notes Alexandre Baradez. The noticeable debuts on the financial markets of companies like Coursera, an online training platform, Bumble, a network of dating sites, or Roblox, a publisher of video games for children, demonstrate the appetite of investors for the universe. tech.
The multiplication of young shoots knocking on the door of the New York Stock Exchange or the Nasdaq in recent months – 21 want to take the plunge this week in the United States – is also due to a subtle change in the trend of the stock market. Central banks are starting to talk about a future rate hike now that the economy appears to be emerging from the pandemic and the risk of inflation needs to be countered. “Everyone wants to go as long as the indicators are still green and it’s easy to raise funds. There is a feeling that the window of opportunity may soon close ”, explains Alexandre Baradez.
Consequence of this stock market rush, both among entrepreneurs and investors: “There is a runaway effect which means that many IPOs benefit from very high valuations, often for companies that have never done so before. of benefits ”, underlines the analysis of IG France.
Optimists will see this as a good sign for the economic recovery to come. All this money that newcomers to the financial markets have managed to raise will allow them to make significant investments in their growth and thus multiply recruitments. It is the application of the famous theorem of Schmidt – named after the German chancellor from 1974 to 1982, Helmut Schmidt – according to which “the investments of today are the profits of tomorrow and the jobs of the day after tomorrow” .
There would thus be a real virtuous circle that would take place. With the gradual end of health restriction measures, demand has already started to pick up and the successful IPOs will create new jobs to improve the purchasing power of these new employees – who will, in turn, consume more and thus maintain growth.
But “there is also a real risk of overheating on the markets”, nuance Alexandre Baradez. After the current period of euphoria, investors may find that they have paid too much for shares of companies that are slow to generate profits. There could then be corrections in the prices of these companies and “if the shock is too great, it can lead to a domino effect which can affect the entire market and, consequently, the real economy”, notes the French analysis.
For him, the current phase is crucial and “everything depends on the capacity of central banks to manage the transition between the period of the pandemic and that of the post-crisis”. If they raise rates too quickly, the stock market backlash could be painful. But if they are slow to react to this overheating IPO market, a point of no return could be reached, with companies benefiting from stock market valuations that no longer have any connection with economic reality. It would then be a house of cards that would risk collapsing on its own, as in the early 2000s, with the bursting of the internet bubble.