Sharp rise in IPOs underlines European equity rally

IPOEuronext, the pan-Eurozone stock exchange, saw initial public offerings (IPOs) worth €6.5 billion in the first six months of the year, more than twice the sum of IPOs completed on its exchange in the whole of 2013.

Eight large-cap firms and 23 small-caps completed IPOs in the first six months, compared to just one large-cap and ten small-cap IPOs in the same period last year.

The rise in IPOs helped total capital raised on the exchange increase to €57.6 billion, compared with €53 billion in the same period last year. The largest chunk of this sum, €37 billion, was raised in fixed income instruments.

The increase in IPO figures comes shortly after news that European mergers and acquisitions also rebounded in the second quarter to their highest level in two years, according to Towers Watson and Cass Business School, and that acquirer companies were outperforming markets.

With a Eurozone equity rally in full swing this year, increased corporate activity might support the view that the Eurozone is finally in recovery. However, some sceptics doubt that the recovery can continue.

One cause for concern is that at the end of June, data on manufacturing purchases in Europe came in below expectations.

“Individual figures for Germany and France were … disappointing and paint a dismal picture of a Eurozone economy which is flat-lining at best,” Nick Beecroft, senior market analyst at Saxo Capital Markets, said at the time.

The BlackRock Investment Institute, which released an update at the start of this month, is a little more confident.

“The European Central Bank's resolve to prevent the eurozone from falling into a deflationary spiral is likely good news for European risk assets,” it says.

However, it also warned that companies would need to demonstrate good earnings to justify investment in European equities.

Some investment managers are still bullish on European equities. ING Investment Management says it prefers to be overweight on European rather than US equities in the current environment.

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