IPO trends January 2017 – September 2019: Do emerging markets differ?
Exchanges are important contributors to the growth and development of domestic economies. They help funnel domestic savings towards a productive and remunerative use, thus sustaining household consumption through an additional source of income and contributing to the accumulation of domestic wealth. At the same time, well-functioning exchanges enhance the ability of young growing companies, as well as more established corporations with expansion plans, to access the capital they need to grow their businesses. As such, the number and the size of initial public offerings (IPOs) on a stock exchange are crucial indicators of the direct contribution of stock markets to their underlying economies.
Emerging markets are broadly understood as well-functioning capital markets in developing countries that have not yet attained the level of maturity of developed markets.[1] When looking at secondary markets, emerging market exchanges on average perform worse than developed ones: they are for example less liquid, more volatile, smaller in size and characterised by lower levels of trading activity.[2] Yet, an open question is how emerging markets perform as compared to developed markets when it comes to primary markets. This short article uses the WFE IPO database, a database of monthly statistics containing details on all IPOs taking place on stock exchanges worldwide, to outline a few stylised facts to answer (or at least to appropriately frame) this question.
Figure 1: Number of IPOs in developed and emerging markets
Source: WFE IPO database.
Figure 1 shows the number of IPOs in developed and emerging markets over the January 2017-September 2019 period.[3] The graph illustrates three facts. The first is that the number of IPOs follows a similar pattern in developed and emerging markets, with a general downward trend and overall correlated fluctuations (the correlation between the two series is 38.8%). The second is that the number of IPOs is overall comparable between the two sets of exchanges, although on average developed markets have more IPOs per month (62.8) compared to emerging markets (51.2). The third is that the number of IPOs is slightly more volatile in developed markets than in emerging ones, with more evident month-on-month ups and downs. Overall it must be noted that in the period considered, developed markets had a sensibly higher number of IPOs than emerging markets;2,053 against 1,689. Yet, the total number of IPOs in emerging economies is of the same level of magnitude.
Figure 2: Capital raised through IPOs in developed and emerging markets [4]
Figure 2 displays capital raised through IPOs in developed and emerging markets over the January 2017 - September 2019 period. Overall the number of IPOs is roughly comparable between developed and emerging markets, but from this graph it is instead immediately evident that the capital raised by newly listed companies is sensibly higher in developed than in emerging economies. Over the period, companies listing through IPOs raised 352.85 billion USD in developed markets, more than three times than in emerging markets where companies raised 113.81 billion USD. On average, exchanges funnelled to companies in developed markets more than 10.69 billion USD per month, as opposed to roughly 3.45 billion USD in emerging markets. The average fund raised per company were 171.87 million USD in developed markets, 2.55 times higher than the ones raised by companies in emerging markets, which amounted to 67.38 million. In must be noted though that our USD currency conversion does not take into account purchasing power parity, and that these figures should be compared to the size of the underlying economies to draw more meaningful conclusions on the relative performance of emerging markets.Figure 2 displays capital raised through IPOs in developed and emerging markets over the January 2017 - September 2019 period. Overall the number of IPOs is roughly comparable between developed and emerging markets, but from this graph it is instead immediately evident that the capital raised by newly listed companies is sensibly higher in developed than in emerging economies. Over the period, companies listing through IPOs raised 352.85 billion USD in developed markets, more than three times than in emerging markets where companies raised 113.81 billion USD. On average, exchanges funnelled to companies in developed markets more than 10.69 billion USD per month, as opposed to roughly 3.45 billion USD in emerging markets. The average fund raised per company were 171.87 million USD in developed markets, 2.55 times higher than the ones raised by companies in emerging markets, which amounted to 67.38 million. In must be noted though that our USD currency conversion does not take into account purchasing power parity, and that these figures should be compared to the size of the underlying economies to draw more meaningful conclusions on the relative performance of emerging markets.
Figure 3: Market capitalisation of newly listed companies in developed and emerging markets
Source: WFE IPO database.
Figure 3 plots total market capitalisation of newly listed companies (on the first trading day) in developed and emerging markets over the January 2017 - September 2019 period. Differently from capital raised, the size of newly listed companies is overall comparable across developed and emerging economies; the total market capitalisation of newly listed companies in developed markets was 1.75 trillion USD over the period, as opposed to 1.13 trillion in emerging markets, a smaller figure but comparable in size. On average, exchanges in developed markets attracted new listings for a market capitalisation 51 billion USD per month, 1.54 times the monthly market capitalisation of new listings in emerging markets. The average market capitalisation per company was 850.69 million USD in developed markets, 1.24 times higher than the one in emerging markets, which amounted to 670.00 million. These figures hint that companies in emerging markets might be subject to tighter ownership control than companies in developed markets, an issue broadly recognised by academic literature.
To conclude, these simple analyses show that primary markets in emerging economies have both differences and similarities with respect to primary markets in developed economies. To start with, while the number of IPOs in emerging markets is overall lower than in developed ones, the figures are largely comparable between the two sets of exchanges. In addition, IPOs show a comparable trend and correlated fluctuations. The size of newly listed companies is also overall comparable between developed and emerging economies. The most evident difference is in the amount of capital raised by companies listing in developed markets, which is roughly two to three times higher than in emerging ones. Given that the market capitalisation of newly listed companies in emerging markets is more comparable, this hints that newly listed companies in emerging economies might be subject to tighter control than in developed ones. More analyses are however needed to draw further conclusions on the contribution of newly listed companies to their local underlying economies, as currency conversions were performed without taking into account purchasing power parity, and the relative size of the local economy hasn’t been taken into consideration. These will serve as suggestions for further research on the topic.
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[1] For a discussion on the nature and the importance of emerging markets, see Andrew G. Karolyi, 2015, “Cracking the Emerging Markets Engima”, and David Lubin, 2018, “Dance of the Trillions”.
[2] We here use the term emerging market in a broad sense, to identify any market that is not categorized as “developed” by third party index providers, like MSCI, FTSE-Russell and Standard & Poor’s. It must be noted though that emerging market exchanges have very different levels of development, and that many of them have sizes and levels of sophistication that are de facto comparable to those of developed markets. To choose an obvious example, many emerging markets (the mainland Chinese markets, the Indian markets, the Taiwan Stock Exchange, the Johannesburg Stock Exchange, or B3) exceeded or were close to the one trillion USD threshold in terms of market capitalization as of September 2019.
[3] To categorise submitting exchanges we used the FTSE Russell classification: https://research.ftserussell.com/products/downloads/FTSE-Country-Classification-Update_latest.pdf
[4] The peak in December 2018 is due to the SoftBank IPO, which was the largest IPO Japan ever had. SotfBank raised more than 20 billion USD upon listing: https://www.cnbc.com/2018/12/19/japan-ipo-softbank-mobile-unit-begins-trading-on-tokyo-stock-exchange.html .