The much-used mantra of protracted geopolitical instability, higher-for-longer interest rates and economic complexities has been expressed to cover a multitude of toned-down financial expectations this year.

Sliding into this swelling bracket is Southeast Asia’s listless initial public offering (IPO) scene, although to date the whole Asian IPO arena in 2024 has yet to deliver the lucrative commercial uplift of previous years.

Asia witnessed a prolonged slowdown in H1 2024, according to the EY Global IPO Trends Q2 2024 report, with a mere 216 IPOs listed and US$10.4 billion raised. This jaded performance represents a year-on-year decline of 43% and 73% by volume and value, respectively.

In a recent conversation with The Asset, Jason Saw, CGS International’s group head of investment banking in Singapore, says the paucity of companies considering IPOs in Asia isn’t just a regional trend.

“The hesitation in launching IPOs is part of current market cycles and is influenced by broader economic conditions, such as interest rates and regulatory environments,” he notes. “And while Asia is experiencing a slow IPO market, it is also a global trend influenced by the broader economic climate.”

However, Chan is optimistic that when interest rates eventually ease IPO activity across the region will begin to revive.

“Interest rates are a significant factor in the feasibility of IPOs,” he notes. “Obviously when rates are high, investors prefer safer investments like treasuries. Lowering interest rates will make IPOs more attractive as companies can achieve higher valuations, and investors will be looking at higher returns than those currently offered by fixed-income securities.”

While Southeast Asia has been on a roll with positive growth and rising foreign direct investment, Saw argues, to stimulate the IPO market, a holistic approach that will improve liquidity, support main markets and boost investor confidence is required.

“Encouraging the listing of fundamentally strong companies, and ensuring proper regulation and support from Asian governments and pension funds,” he points out, “are crucial steps.”

Digital competition

Quizzed on whether the flurry of new digital platforms like ADDX and ALTA could pull away potential IPOs, Saw says, he sees the offerings more as complementary rather than competitive to traditional IPO hubs.

“They cater to smaller investments and different market segments and are providing additional avenues for fundraising rather than directly competing with traditional IPOs,” he states. “So, they are not significantly diluting the dominance of traditional IPO offerings.”

And, while Indonesia and India are showing incremental improvements in their IPO markets, Saw believes that, due to regulatory and market conditions, they are unlikely to replace international hubs like Singapore or Hong Kong in the near term. “They may see more local IPOs, but they won’t become global hubs soon.”

Amid the dearth of noteworthy IPOs in Asia, the homegrown fast-fashion giant Shein is looking to list in London, in what could end up being one of the largest listings of 2024. Although headquartered in Singapore, the Chinese clothing manufacturer is honing in on a European listing. So, why has no Asian hub attracted Shein to place its IPO in the region?

“Shein has considered multiple factors for their IPO location, and while Singapore and Hong Kong offer liquidity, they are not known for high valuations compared with other markets,” Saw explains. “This likely influenced Shein’s decision to consider London over Asian hubs.”

Source: Deloitte Southeast Asia Mid-Year IPO Snapshot 2024

Second-half comeback?

It’s not all doom and gloom, however, as some market observers see the second half of the year as yielding a better crop of IPO fruit. But some of those predictions come with the usual global caveats, and they were formed before the beguiling Trump-Biden-Harris or whoever-next events in the US.   

Three pivotal themes are likely to influence the Asian IPO market in the coming quarters, namely central banks’ interest rate cut schedules, escalating geopolitical conflicts and an election super-cycle.

As global inflation cools, central banks may start lowering interest rates, increasing liquidity in equity markets and growth-oriented sectors like technology and health and life sciences.

This could lead to more companies entering the public market, guided by quality, valuation and investor demand. A rise in private equity- and venture capital-backed IPOs, lower free-floats, accelerated IPO timelines and alternative funding methods like convertible bonds could unfold.

Despite local challenges and macroeconomic headwinds in the first half of 2024, Jasmin Maranan, a Deloitte partner in Indonesia, notes that Indonesian companies are adapting effectively and the Indonesia Stock Exchange (IDX) anticipates over 60 IPOs by the end of 2024.

Asean appeal

Although the IDX may not replicate its exceptional performance of 2023, which was marked by large deals, Indonesia continues to be a hub for high-growth companies in tech, agriculture and renewable energy. These companies are strategically focusing on profitability and sustainable cash flows. “IPOs remain a viable option,” Maranan adds, “supported by robust activity in the global IPO markets.”

And, while the Asian IPO market appears subdued, Tay Hwee Ling, a partner at Deloitte Singapore, says, cautious optimism exists for improvement beyond 2024. As investors adapt to higher rates and reduced liquidity, they navigate geopolitical and economic complexities better, Tay explains, adding that potential interest rate decreases may also revive real estate investment trust listings, and a potential wave of artificial intelligence IPOs could yet bring a new slew of opportunities.

The IPO landscape in Malaysia for the rest of 2024 appears hopeful, with Bursa Malaysia remaining optimistic with a target of 42 listings, states Wong Kar Choon, Deloitte Malaysia’s disruptive events advisory leader and audit and assurance partner, in Deloitte’s Southeast Asia Mid-year 2024 IPO Snapshot.

Meanwhile, in Thailand, the effects of the newly implemented rule that requires a three-year financial statement audit did not impact the country’s IPO performance during the first half of 2024, notes Deloitte’s Wilasinee Krishnamra, and the implementation of new listing regulations in 2025 is anticipated to precipitate a surge in the number of IPOs during the second half of 2024.

As global geopolitical tensions rise, and in particular those between the US and China, the Association of Southeast Asian Nations (Asean) region could be well positioned to benefit from businesses seeking to reduce the associated risks.

“From cross-border listings within the region to a shift in supply chains and an increase in foreign direct investments, Asean’s relatively stable political and economic landscape presents a compelling alternative for companies navigating the uncertain global climate,” says Chan Yew Kiang, EY Asean IPO leader, in the EY Global IPO Trends Q2 2024 report.

“Further, the first half of the year is often quieter in terms of IPO activity,” Chan shares, “that said, IPO aspirants should be aware of uncertainties over the listing process, and processing times during the approval of the prospectus and the registration of securities, which can impact the attractiveness of a listing.”