KUALA LUMPUR: Malaysia has become a new initial public offerings (IPO) hotspot market, surpassing traditional IPO powerhouses with notable increases in both transaction volume and proceeds.
According to Ernst and Young's (EY) EY Global IPO Trends 2023 report, Malaysia experienced a significant surge in the number of IPOs last year, outpacing the 5-year average by 21 per cent, and a 25 per cent increase in IPO proceeds over the 5-year average.
As of October 2023, the market capitalisation of the local stock exchange was US$357 million.
Thong Pak Leng, vice president of equity research at Rakuten Trade Sdn Bhd, expects a spike in companies aiming for IPOs as the economy and businesses begin to show signs of recovery after Covid.
"We believe the landscape of the IPOs this year is based on our positive anticipation of the market. However, investors should be careful in selecting which IPO to invest in given their different business natures. We advise you to focus on the valuations and opportunities in the sectors," he told Business Times.
Thong expects the number of IPOs to exceed 15 this year, with total values rising concurrently.
He thinks that there will be more listings in the technology, healthcare, and construction sectors, driving IPO activity this year.
"We expect the market to be better this year given the anticipation of rate cuts in the US, which will cause funds to flow back to the Asia-Pacific region. Malaysia will benefit from the spillover effect," he said.
Tradeview Capital Sdn Bhd vice president Tan Cheng Wen expressed confidence in the sustained activity of the IPO landscape.
He said there are currently around 20 upcoming IPOs listed with an approximate value of close to RM1.5 billion to be raised based on recent searches on the Prospectus Exposure sections on the Securities Commission and Bursa Malaysia websites.
"However, our internal projections place the number of IPOs in 2024 a little higher, but it may likely fall short of the 32 IPOs in 2023 that raised RM2.6 billion," added Tan.
Tan emphasised that, in spite of the anticipated slowdown in the world economy in 2024, especially in the US and China, Malaysia is expected to outperform this trend, with real gross domestic product (GDP) growth expected to rise to 4.5 per cent from 4.0 per cent in the previous year.
"Coupled with the normalisation of inflation and potential rate cuts by the US, we believe interests in the Malaysian capital market will be reignited.
"The likely improvement of market conditions could spur more listing activities, and, hence, IPO trends will remain robust this year," he said.
Tan holds the view that there is no predominant sector driving the 2023 IPO listings.
Extending this observation to 2024, he considered the details from the Prospectus Exposures, and it appears that the IPO landscape is characterised by significant diversity and variation.
Tan said that in 2023, there were about 1,300 to 1,400 IPOs, collectively raising about US$136 billion.
The majority of these IPOs were concentrated in the industrials segment (23 per cent), followed by technology (18 per cent), and consumer staples (17 per cent).
"Looking towards 2024, there is a pending amount of US$59 billion worth of IPOs currently listed on Bloomberg, and we foresee the final number to likely fall short of last year's activity due to the anticipated global economic slowdown in 2024," he added.
Tan also noted that the FTSE Bursa Malaysia (FBM KLCI) has risen by 2.1 per cent, an improvement compared to the 1 per cent performance observed in the first week of 2023.
"The current positive performance from the FBM KLCI is in line with consensus's expectation of the KLCI ending the year at 1,600," he said.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said with global interest rates likely to come down, he believes the appetite for IPOs in Malaysia would be positive.
"The equity market tends to be positive when global central banks start easing their monetary policy," he said.
Mohd Afzanizam emphasised that while the market is volatile, the focus remained on the prospect of rate cuts in the US, which seemed to be fluid and very data-driven.