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Deutsche Börse published the IPO sentiment indicator forecasting issue activity for the 1st quarter of 2013 on Monday. According to the indicator, the IPO climate, which reflects the sentiment of investors, companies and underwriters on the primary market, remained positive at 32.43 points compared to 32.8 points in the previous quarter.
In contrast to global IPO activities, market participants in Frankfurt see a favourable period for placing shares and expect a positive price level for them in the coming months. The lower volatility and higher valuation of equities is also having a positive effect on the primary market. According to the surveys, IPOs are primarily to be expected from March. This time window primarily arises from the fact that companies preparing for an IPO produce their financial statements by March, and from May onwards prepare their semi-annual reports.
Although the DAX index has risen, those surveyed no longer see the current price level as positively as they did as recently as three months ago, however expectations regarding the further development of share prices have risen. Nevertheless the price/earnings ratio, and thus an important key figure for share valuation, is still below its long-term average at 13.
The continuing low volatility of German blue-chip securities is having a lasting positive impact on the primary market. In the period under observation from the end of October 2012 to January 2013, the expected price volatility for DAX shares has fallen from 16 percent to 13 percent for a timeframe of 30 days, as measured by the VDAX-New, and with only minor fluctuations. A year ago the volatility was still at 40 percent here; the long-term average is close to 20 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.
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 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: http://www.boerse-frankfurt.de/en/market+sentiment
