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It’s the deer rutting season and stags are out in force — and not just in the woodlands. On stock markets across the world investors are buying and flipping shares in primary issues.
This practice of stagging, as it is known, is proving fruitful. Shares in US initial public offerings that took place in the first half of this year, excluding blank cheque vehicles, rose by more than a quarter on their first day of trading, according to S&P Global. That was only once beaten in the past decade, and then by only a couple of percentage points.
It’s not just America. Stocks listing in the UK, admittedly a small grouping, have “popped” an average 18 per cent so far this year. In Hong Kong debut gains average 34 per cent, according to Dealogic. In mainland China, prices more than trebled.
British shareholders got into the habit of seeing the IPO market as a quick-minting money machine in the 1980s, when then-prime minister Margaret Thatcher began privatising a slew of national assets. British Telecom, for example, repaid stags with a near doubling of the initial investment on day one.
Averages, of course, are easily distorted. US design software maker Figma more than quadrupled on its debut in July. It then slipped back, although the stock still trades at nearly twice its IPO price. The previous month, stablecoin purveyor Circle Internet Group more than doubled.
When the quantum of stock is smaller, it’s easier to dial up returns. India’s average listing gains of 22 per cent among over 160 issues since the beginning of last year, as measured by Bernstein, looks impressive. But smaller listings — in some cases raising just $20mn — far outpace the 9 per cent gains wracked up by the $1bn-plus offerings.
Stags have a tendency to be skittish — both the animal and the financial kind. When pops are huge, it suggests prices have been set far too low, and that the IPO process is off kilter. That can overcorrect in the other direction as backers start to push for higher valuations rather than hand easy gains to newbies.
In the round, companies should prefer investors of a less-fickle nature. Part of the UK’s privatisation drive was to foster a nation of share owners, but shoals of small-scale investors scarpered after cashing in. Or take India, where foreign institutional investors are actively buying into IPOs even as they dump shares in the secondary markets.
The idea that first-day stocks are an asset class unto themselves is in some ways reassuring. It adds to the sense that early performance isn’t much of a guide to a company’s long-term prospects once those quick-profit chasers have dispersed. Facebook, now Meta Platforms, remains the classic example of a disappointing debut that was easily sloughed off. Wise investors will admire the stags, but keep their distance.
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