The market for IPOs appears to be getting better in the US. In 2008, just 43 new listings were offered; in 2009 the number went up to 63. So far this year, there are more than 100 companies lined up to go public.
Initiating, and completing, an IPO is as much a matter of market timing as it is anything else. A company’s product may be a world-beating, game-changing innovation, but if the market is scared of something, anything, an IPO may come out at a lower price or it may be cancelled altogether.
Right now, markets are cautious as the signs of a global economic recovery waver from promising to weakening. The US unemployment rate isn’t getting any better, but trade balances are because the dollar is getting weaker.
One thing that may be helping the market for US IPOs is the perceived increase in transparency resulting from the 2002 Sarbanes-Oxley Act. Where SarbOx was once blamed for sending IPOs to London or Shanghai, now the effects of the act enhance the US’s position as a leader in improving corporate transparency and governance.
It’s also true that a listing on a US exchange gives a company access to the most liquid market in the world, as well as the prestige that goes along with a US listing. From year-ago lows, the S&P 500 index has increased by about 60%. The index fell from mid-January to mid-February, but has begun to recover its upward movement. That’s good news for the IPO market.
Generally speaking, the projected US budget deficits should work to increase interest rates and lower investment. Some economists argue that the deficits crowd out private investment by making US debt more attractive. Ultimately this leads to inflation.
However, in the unusual case that we’re living in now with interest rates near zero, the Federal Reserve cannot lower rates any further as the economy expands. That makes cheap money available for more private investment.
Investing in IPOs depends both on current and projected interest rates more than anything else. Are equities closer in value to bonds or is money closer in value to bonds? If the answer is equities, then government deficits don’t crowd out private investment, government spending crowds into the market, actually stimulating private investment.
Taking a risk on an IPO today isn’t much of a risk at all, really. Of course the share price may go up or down as the company performs or fails to perform. But an IPO bet today has a much better than even chance of making money for investors.
Related Articles:
Get the names of the best cheap stocks to rebuild your wealth in 2010. Each stock sells for less than $10 a share and is set to double in the next 12 months — download your FREE report here.– download your FREE profit guide here.
