Initial public offerings have been doing extremely well lately, bringing to mind the excesses of the tech bubble in the late 1990s.
The performance after that in the late 1990s was even more dramatic. Image: Bloomberg
Initial public offerings have been doing extremely well lately, bringing to mind the excesses of the tech bubble in the late 1990s. Shares in Chinese toymaker Pop Mart International Ltd. jumped as much as 112% in their debut Friday, after home-rental platform Airbnb Inc. closed 113% above its IPO price in New York. JD Health International Inc. surged 56% in its debut Tuesday while DoorDash Inc. soared 86% in on Wednesday.
The FTSE Renaissance Global IPO Index, which tracks the performance of offerings worldwide, is up 82% this year, compared with a 12% gain for MSCI’s all-country equity index. Comparing the current period with the dot-com bubble is hard to do directly because the Renaissance IPO Index didn’t start until 2009, and a Bloomberg index that was around in the dot-com boom became defunct in 2017.
There are some pretty clear similarities between the Bloomberg index versus the S&P 500 in 1998-99 and the Renaissance gauge now, noted Cameron Crise, a macro strategist at Bloomberg. The performance after that in the late 1990s was even more dramatic. If IPOs were to follow the same pattern now, they would have a huge jump still to come — before a pretty spectacular drop.
“The action in these names is definitely a concern for us,” said Matt Maley, a strategist at Miller Tabak + Co., speaking about the U.S. IPOs.
“However, we’d also note that experience tells us that froth in the IPO market tends to be a ‘leading indicator’ for an important top — not an ‘immediate indicator’ of a top. In other words, yesterday’s action in the IPO market probably tells us that we’ll see a meaningful correction at some point over the next six to nine months, not necessarily over the next few days/weeks.”