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China, technology, and private equity are expected to drive IPO activity in 2010, according to Ernst & Young's [14]Institutional Investor IPO survey 2009, which polled 300 institutional investors around the globe.

According to the study, 75% of respondents believe that the Chinese market is to make an early IPO recovery, followed by India and and Brazil, selected by 57% and 51% of investors respectively. Ernst & Young's quarterly data has show that this trend has already started in Q3 2009 and is likely to continue in Q4 2009. Investors believed that the US (53%), Singapore (61%), Mexico (51%), Australia (57%), the Middle East (20%) and Canada (32%) are expected to make a medium-term recovery between Q1 2010, at the earliest, to Q2 2011 at the latest.

"Recent IPO activity in the last two quarters confirms that some IPO markets are making an early recovery, notably in the emerging economies of China, India and Brazil. China-based companies in particular have been significant in driving recent capital market activity, with more deals than North America and Europe combined. Although the rest of the world appears to be picking up, full recovery will take longer and we don't expect markets to stabilize for another 12 months," says Ringo Choi, regional managing partner, China South at Ernst & Young.

Top 5 Industry Sectors 

Meanwhile, 45% of investors believe that the technology sector will lead IPO recovery globally, followed by financial services (43%), oil and gas (38%), metals and mining (35%) and consumer and retail (32%).

According to Choi, technology companies often lead IPO recovery because they are perceived to have good market growth opportunities, and able to achieve attractive equity pricing. "It is also not surprising that investors show an interest in mining and oil companies - given the rise in asset prices. Those that have survived the global economic downturn are in now in a stronger position to attract investors than they have been for some time," adds Choi.

Terence Ho, strategic growth markets and IPO leader for Greater China at Ernst & Young, says that IPO activity in Hong Kong for the first 10 months of 2009 has already exceeded the full year of 2008 by 62%, based on funds raised. He adds that by the end of October 2009, there have been 38 IPOs with total funds raised of HK$107 billion, while there were 29 IPOs with total funds raised of HK$66 billion for the full year in 2008.

"Real estate, building materials and consumer products and retail are the main sectors driving IPO activities," says Ho, adding that in the China A-Share market, RMB117 billion was raised in 60 IPOs in the first 10 months of 2009, which was 13% more than RMB$104 billion raised in 76 IPOs in the full year of 2008."

According to Ernst & Young, IPO activities are expected to continue to be strong in China in 2010. This is underpinned by the strong investment sentiment shown in the survey: 64% of investors expect to increase their level of investment in IPO stocks in China in the next year and a half, while 34% of respondents will keep the same level of investment.

Private Equity to Lead the Way 

Investors saw a variety of different types of comapnies in different jurisdictions that are looking to float over the next year. Private equity-backed companies are predicted to go public first in the US, according to 47% of the respondents, UK (45%), France (35%) and Germany (33%).

Ho also points out that private equity-backed companies are playing a significant role in driing public offerings, and given the backlog of companies awaiting exit within their portfolios, they are posed to increase in importance in China. "With the launch of China's Nasdaq-style board, ChiNext, VC/PE investors now have one more option to exit via the domestic bourses, and investors are now likely to retain more capital raised through IPOs in China to fund small and medium-sized enterprises," reveals Ho, adding that of the first 28 companies which went public on the ChiNext, close to 20 companies are VC/PE-backed companies. The trend, Ho says, will continue as VC/PE investors back high-growth enterprises, which dovetails with China's national strategy to promote innovation.

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