The World Federation of Exchanges (WFE) has unveiled data indicating a decline in the global count of Initial Public Offerings (IPOs) and cash equities trading across various regions during the first half of 2023 compared to the same period in the previous year.
WFE, a prominent global association encompassing exchanges and central clearing counterparties, released a statement attributing this dip to a series of geopolitical and economic tensions that have characterized the markets in the first half of 2023.
The federation pointed out that the cumulative impact of events like the conflict in Ukraine contributed to financial institutions facing challenges, with instances of bank failures being reported both in Europe and the United States.
Adding to the turbulence, persistent inflation compelled central banks to maintain their course of tightening monetary policies. This, in turn, led to interest rate hikes, putting downward pressure on stock prices.
The released statement stated, “Our analysis of the data for the initial half of 2023 underscores the influence of these tensions on the markets. Most notably, a decrease is observed in both global IPOs and investment activity when compared to the same timeframe in 2022, indicating a cautious stance adopted by firms and investors. A few markets, notably the US, exhibited positive trajectories in these metrics.”
“Correspondingly, trading volume in cash equities saw a decline across regions, reflecting reduced enthusiasm for market participation. On the flip side, there’s an uptick in trading volumes of exchange-traded derivatives, particularly in interest rate and commodity contracts. This aligns with the need to manage risks and uncertainties arising from interest rate hikes, geopolitical circumstances, and inflationary concerns,” the statement continued.
Nandini Sukumar, the Chief Executive Officer of WFE, commented on these developments, stating, “The initial half of this year proved challenging for markets, and the IMF’s global growth projections suggest a gradual recovery. As we step into the latter half of the year, the focus will be on inflation trends. A decline in inflationary pressures, coupled with a slowdown in monetary policy tightening, could alleviate the trends seen in the first half, fostering greater market confidence.”
Dr. Pedro Gurrola-Perez, the Head of Research at WFE, added, “Our freshly compiled data implies a slower economic rebound than anticipated, reflecting the toll of geopolitical and economic tensions. The decrease in IPO counts and investment activity, in particular, signals the persistence of uncertainties faced by businesses and investors since the previous year.”
Looking ahead to the latter half of the year, WFE projected that a reduction in inflationary pressures and a deceleration in the tightening of monetary policies might contribute to moderating the aforementioned trends.
Nevertheless, the International Monetary Fund (IMF) projects global growth to contract from an estimated 3.5% in 2022 to 3.0% in both 2023 and 2024.
“If these projections materialize, it’s likely that a reversal in these trends may not occur until late 2024,” WFE concluded.