The big freeze in capital markets has showed signs of a thaw with 17 new listings in September and October, but the spectre of high inflation, rising interest rates and global instability continues to be a dragon sentiment.
The big Initial Public Offerings that had been talked about at the start of the year – Virgin Australia, Molycop, and Mondiale VGL – now appear to be on the back burner until next year.
But it is not all gloom.
Two potential hotspots standout.
Healthcare, courtesy of an ageing population creating strong opportunities in this space, and renewables, driven by emissions reductions targets and the manifestation of climate change impacts.
On healthcare, Chloe Argyle, Director of Equity Capital Markets with ethica Capital, says there has been particular interest in companies that show a preference for technology and digitising their operations.
InvoCare, an ASX-listed company that provides funeral, cemetery and related products and services is one company that fits into their category.
On renewables, she says: “Australia is poised to monetise it’s abundant solar and wind resources and valuable deposits of critical resources such as lithium".
“Private equity funds have started to capitalise on the decarbonisation trend.’’
She says climate change is a growing consideration for capital markets.
“As more nations commit to net-zero emissions targets, companies are under pressure to not only set targets, but develop credible transition plans and demonstrate meaningful progress,’’ Argyle says.
“Increasingly super funds and sovereign wealth funds are selective about where they choose to invest,’’ she says.
Another emerging trend is the increasing involvement of private equity funds in mergers and acquisitions.
Chloe Argyle, Director of Equity Capital Markets with ethica Capital says two primary factors are cited for the subdued outlook for IPOs - market conditions and pricing considerations.
She says one of the drags on the markets this year has been the United States economy. Investors have been waiting on the sidelines for interest rate increases to spark a recession in the US.
But the economy has kept chugging along, leaving investors unsure about which way it is headed.
At the same time, US bond yields have hit 5 per cent, their highest level since the Global Financial Crisis, putting pressure on equity valuations.
Amid the uncertainty, a standoff has emerged between companies looking to list and investors.
“What investors want, whether it is an IPO, secondary market purchase or equity raising, is cheap stock,’’ Argyle says.
“Unit vendors are willing to offer sure things, significantly discounted IPOs, it is hard to see the floats market catching fire again,’’ she says. “Market conditions would have to improve considerably, and there is always something to fret about.’’
.png)