DESPITE all the headwinds – a global pandemic and Brexit being the most notable – the stock market looks to be in remarkably good health as we enter the second half of the year.
The weekend financial press was dominated by an improved takeover bid for William Morrison and the market, as measured by the FTSE 100, is up over 10 per cent in the year to date.
The other sign of a flourishing market is the number of flotations that have taken place so far. Now called initial public offerings (IPOs), there has been a surge in companies seeking a listing, in the UK since the beginning of the year there have been 48 IPOs, compared with 43 in the whole of 2020.
It is a similar picture in the US which has seen the most active second quarter since the turn of the century, with 113 IPOs raising collectively just under $40 billion.
It seems that this flurry of activity is not yet over. Several companies have unveiled their intention to list recently, giving the impression of a healthy and more buoyant market. It is in many ways a welcome relief after the huge impact of coronavirus and also in the aftermath of Brexit: clearly there is still demand for IPOs and it also appears to indicate that the UK stock market is still viewed as an attractive investment market.
Whilst some of these new offerings have performed relatively well, such as Darktrace, Trustpilot and Moonpig, others have noticeably struggled. Deliveroo has had a difficult time, for example, and still trades well below its issue price more than three months on. This somewhat mixed picture has led to concerns that the quality of listings is questionable.
One other change in recent times is that retail investors now have much greater access to new listings, indeed throughout the pandemic there has been a surge in individual investor activity in general with some high-profile challenges to hedge fund actions.
Whilst this is very welcome, it should be remembered that new issues carry considerable risk and it is vital that potential investors carefully consider their rationale for investing.
There is always an attraction when markets are performing well and this year so far has certainly provided a favourable backdrop, but it remains to be seen whether the momentum will continue. There are some obvious clouds on the horizon: higher interest rates and inflation being the most obvious and some IPOs have been postponed already, possibly early signs of a slowdown.
On the other hand, if market statistics are to be believed, such a positive first half for the market usually results in a positive picture for the rest of the year.
There is a lot going on at the moment - M&A activity, IPOs, a booming housing market as well as the start of a return to normal life.
Interesting times indeed as we look forward, but much could also go awry and a note of caution should be sounded as there could be bumps in the road ahead.
:: Cathy Dixon is a partner at the Belfast office of Smith & Williamson Investment Management. This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise.
