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Deutsche Börse published the IPO sentiment indicator forecasting issue activity for the 4th quarter of 2012 on Tuesday. The IPO climate, which reflects sentiment among market participants, has improved considerably, climbing from 29.9 to 32.8 points quarter-on-quarter. This is primarily due to lower volatility, higher prices for DAX shares and a slight increase in underpricing.
In the period from early August to the end of October 2012, expected volatility, measured by the VDAX-NEW index, dropped from levels that were almost constantly over the 20 percent mark to 16 percent, albeit with considerable fluctuations. The decrease in price fluctuations is having a positive impact on the primary market. One year ago, the volatility of German blue chip stocks was still 40 percent. One possible explanation for the impact of volatility on issue activity is the uncertainty that more marked share price fluctuations imply for issue proceeds and, as a result, the success of an IPO.
Furthermore, the slight easing of the euro crisis is prompting more IPOs. The initial listings seen over the past three months, Talanx, Telefónica and Hess, account for a total issue volume of €2.3 billion. In spite of the successful IPOs, it is important to bear in mind that both the proceeds and the issue prices fell short of the issuers' original expectations.
The difference between the issue price and the first quoted price, known as underpricing, rose only slightly from -5.15 to -4.82 percent and remains close to its all-time low. These price signals play a key role in the development of the primary markets. Subscription gains, in particular, reflect how keen investors are to buy.
Although sentiment has improved considerably on the whole, optimism unfortunately remains somewhat subdued. The positive market conditions for initial listings, referred to as the IPO window, are expected to remain intact for another four weeks or so. Experience shows that fewer companies tend to go public in the first quarter of the year, as this is when annual reports are usually published.
The IPO sentiment indicator was developed by the Center for Entrepreneurial and Financial Studies (CEFS) at the Technical University of Munich together with Deutsche Börse. The indicator, which looks in detail at the conditions for IPOs, is compiled from surveys of market participants on the IPO climate in combination with calculations based on quantitative parameters such as share prices, subscription gains and volatility. This mood barometer for the primary market is published quarterly and provides investors, issuers and banks a tool with which to assess the market situation.
The full report and further information are available at: www.boerse-frankfurt.de/sentiment
