Deutsche Börse published the IPO sentiment indicator forecasting issuing activity for the 3rd quarter of 2012 on Monday. The IPO climate, which reflects the mood of market participants, remained at the low level seen in the previous quarter and even fell slightly from 31.35 to 29.94 points.
The uncertainty on the equity markets as a result of the persisting euro crisis is also continuing to have a direct impact on the primary market. In the face of price increases on the equity market and sideways volatility, the Deutsche Börse IPO indicator was unable to rise despite a slight improvement in overall sentiment. High price fluctuations in equities trading are having a major influence on sentiment in the primary market. One possible explanation for the impact of volatility on issuing activity is the uncertainty that larger price movements mean for an IPO's proceeds and thus for the success of the IPO from the point of view of the companies and banks involved.
Although the primary market has seen some movement with seven IPOs since May, only two of the companies are currently trading above their issue price. It is striking that sentiment among issuers has seemed markedly worse in the last year than that of investors or banks. This suggests that the slowdown in the primary market is issuer-driven. Issuers clearly take the view that the prices they can achieve with an IPO are too low. Companies are in any case generally cautious about IPOs in the third quarter. This is because of their reporting schedules: companies prefer to brave the move onto the stock exchange with up-to-date annual or half-yearly results.
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 and is supplemented by calculations involving quantitative variables such as share prices, the difference between a company's issue price and its initial listing price, and volatility. This barometer of sentiment for the primary market is published quarterly and provides investors, issuers and banks with a tool for assessing the market situation.
The full report and further information are available at www.boerse-frankfurt.de/en/market+sentiment
