(Repeats, without changes, story first published on Friday)
* Big inflows fail to rouse equity markets; IPOs absorb cash
* IPO activity nears levels seen in tech bubble in 2000
* Recent U.S. IPO firms largely unprofitable -Redburn
* Short sellers targeting recent IPOs -Markit
By Tricia Wright
LONDON, May 2 Firms are queuing up to list on
equity indexes, sucking cash from existing listed stocks and
fuelling worries that these high flotation volumes could be
signalling an impending market fall.
So far this year, the value of initial public offerings
(IPOs) worldwide has soared close to levels last seen in the
dying days of the tech bubble of 2000, supported by central bank
policies that have pumped out cheap money and underpinned market
gains over the past five years.
While high levels of IPOs can be healthy, feeding firms
capital to expand their businesses, valuation ratios on a number
of stocks entering the market have risen to levels that can
signal the market is due for a sharp correction.
Investors have been dumping shares in recently-floated firms
especially in the tech sector as concerns mount about
valuations, reviving memories of the dotcom crash.
These IPOs are also soaking up cash. Despite huge inflows
into equities since the start of the year, the MSCI All-Country
World index, which tracks shares in 45
countries, is trading only slightly higher over the period.
"The new paper which is coming to market is diluting the
technical support from fund flows... It does leave us
vulnerable," Ian Richards, global head of equities at Exane BNP
"We know that there's still a big IPO pipeline ... Some of
those deals will try to be squeezed through, then potentially
that's a suppressant for markets."
Global-listed IPO volume, at $65.8 billion via 331 deals so
far in 2014, represent the highest year-to-date value since 2010
and are just shy of a 2000 peak, data from Dealogic shows.
Meanwhile, equity funds globally have taken in more than $84
billion this year, according to EPFR Global data.
"Many times, what fund managers will do is that they will
make sales in the secondary market to subscribe to those
(initial public) offerings," Ashish Misra, head of investment
policy at Lloyds Bank Private Banking, said.
PORK IPO PULLED
While the IPO stream remains robust, many of the companies
listing have poor quality earnings. The proportion of U.S.
companies coming to the market that are unprofitable is now at
74 percent, its highest since 1999, analysts at Redburn said.
Concerns about overstretched valuations have meant scant
demand for new firms that might once have drawn huge interest.
Chinese pork producer WH Group, for example, pulled
its Hong Kong IPO after failing to get the valuation it wanted
while some recently floated web-based firms are trading below
their issue prices.
These include King Digital Entertainment, parent
company of mobile game "Candy Crush Saga", white goods retailer
AO World, and online takeaway service Just Eat -
which achieved a heady valuation of 1.5 billion pounds ($2.5
billion), over 100 times its earnings of 14.1 million pounds.
"It's become very dangerous," George Godber, manager of the
CF Miton UK Value Opportunities Fund, said.
"Once you start creating losses in the system, then you
force people to sell down other positions... (And) nobody in the
teeth of a bear market will pay record multiples for something
that 'sounds like a good idea'."
Markit data shows that short sellers - who sell borrowed
shares, hoping to buy them back more cheaply and pocket the
difference - have been targeting stocks which floated in 2013.
In the three months after listing, the nine most borrowed
stocks fell by more than 30 percent, it said.
"As IPOs do well, you then get into a frenzy," Miton's
Godber said. "The banks are there to make money from
transactions, not from the success of them ... and the quality
(of companies floating) hugely deteriorates."
($1 = 0.5922 British Pounds)
(Graphic by Vincent Flasseur; Editing by Blaise Robinson/Ruth