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Global IPO Activity “Has Collapsed” Amid Market Turmoil

Courtesy of ZeroHedge View original post here.

Several months ago (at the start of March), we pointed out how capital markets were becoming dislocated, credit markets were freezing, and economic paralysis was unfolding across the world as the pandemic worsened. This all resulted in a deep freeze of the global IPO market that continues to be lifeless even at the start of May. 

JPMorgan's Cross-Asset Strategy desk, headed by John Normand, published a note on Friday titled "The role of alternative assets post COVID-19," which states explicitly that global "M&A and IPO activity has collapsed" around the world, "as it always does in a recession." 

Normand describes a "post COVID-19 environment" where "higher cost of funding plus more challenging IPO markets facing financial sponsors:" 

"The post COVID-19 environment diminishes the appeal of most Alternatives over the next year, but it could strengthen the medium-term thesis for some. The cyclical negative for parts of the complex like Private Equity and Credit is the earnings and default risk created by a deep recession, and the higher cost of funding plus more challenging IPO markets facing financial sponsors (chart 7). Parts of Real Estate (commercial property) and Infrastructure (ports, airports) also deserve a rethink as corporates reassess their location strategy and government restrictions plus individual preferences alter travel demand. But as in public markets, these challenges are somewhat offset by better entry levels for those with a Value tilt. By contrast, this cyclical environment could prove more profitable for hedge fund styles with a flexible mandates, which could explain why some styles like Macro ones have generated stable returns during recessions and stronger ones thereafter." 

Normand adds color to the global economic crisis, stating the current recession is a "hybrid of natural disaster and leverage problem:" 

"Our view has been that the current recession is a hybrid of natural disaster and leverage problem (mainly in US corporates from their high level of debt, poor credit quality and falling margins pre-shock). Thus it is appropriate to expect a massive, initial growth surge in H2, at least an 18- month-long process to return to the prior level of growth, and disinflation into a new lower range on global core CPI. That environment can still support many asset prices under certain conditions at various points in the cycle: DM Credit because it is cheap and has a central bank backstop; DM Equites as earnings normalize and low bond yields underpin high multiples; EM Equities now for the region first out of the COVID-19 shock (Asia), and later for others; and Equity sectors and styles that are endgame winners in an environment that prioritizes resilience though technology, public health and less leverage (Tech, Comms, Healthcare, Quality)." 

In a separate report by Renaissance Capital, they noted the 2020 US IPO market just experienced its slowest March and April in nearly a decade, "as volatility essentially shut the IPO window." It said only seven IPOs were seen in the last 60 days, a 70% plunge from the 15-year average of 23 IPOs. 

h/t Renaissance Capital


 

Since mid-March, the Emini S&P500 climbed a staggering 37% in 27 sessions on central bank liquidity and hopes the virus crisis has abated. However, a near 5% decline in the last several sessions could suggest another equity rout is ahead

Furter selling would pressure equity voltlity higher, leaving IPO markets in the US and across the world shut even longer. Will 2020 be a lost year? 


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