Asia’s capital markets expected to be revitalized by stable interest rates in the second half

Asia’s equity capital markets have experienced a decline in activity in the first half of the year, reaching the lowest levels in four years. However, industry experts are optimistic that a combination of global interest rate stabilization and an economic rebound in China will revitalize deal activity in the region.

Data from Refinitiv shows that Asia Pacific equity capital markets volumes dropped 16% to $117.2 billion in the first half of the year compared to the same period in 2022. This decline is mainly attributed to a 34% drop in initial public offerings (IPOs) which amounted to $34.3 billion.

The lackluster performance has led to job cuts in major investment banking divisions, including Goldman Sachs. However, industry professionals believe that a more stable interest rate environment in the US, economic stimulus from China, and improved geopolitical conditions are necessary for investor sentiment to return for IPOs.

China currently holds the top two spots for IPOs on global league tables. The first half of the year saw companies listing on Shanghai’s STAR Market raise $10.1 billion, nearly double the proceeds of New York deals. Similarly, companies debuting on Shenzhen’s ChiNext market raised $8.1 billion. In contrast, Hong Kong only raised $1.9 billion in the first half, while Indonesia emerged as a bright spot with $1.6 billion in new share sales.

Despite the current downturn, bankers are optimistic that the stabilization of interest rates globally and stimulus measures in China will boost deal activity in the next six months. Larger transactions are favored to kick-start activity, with a focus on companies that have scale, strong earnings, and a liquid after-market. Sectors linked to China’s reopening, such as consumer and clean energy, will also be a key focus.

Potential big deals include China’s JD.com, which has filed to spin off units JD Industrial and JD Property, raising $1 billion each in Hong Kong deals. Alibaba Group has also announced plans to separate six business units, which will potentially carry out IPOs or capital raisings to fund future growth.

In Southeast Asia, an uptick in IPOs is expected in the second half, with companies like Pertamina Hulu Energi and Amman Mineral Internasional planning substantial IPOs. Bankers believe that the region still has several potential listings in the works, which will boost new issuances.

Overall, industry experts are hopeful that the combination of stable interest rates and a Chinese economic rebound will bring renewed activity to Asia’s equity capital markets in the coming months.

 

Reference

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