Conditions that contributed to the current equity capital markets bonanza could be winding down, says Gareth McCartney, UBS’ global co-head of equity capital markets. A precipitous fall in equity catalysts from the first half to the second could continue as rate hikes and Covid-related concerns roil markets, McCartney argued at this morning’s UBS M&A and capital markets media roundtable.
“The big unknown is the normalization of interest rates given how much of the rally in the equity market has been driven by ongoing liquidity,” McCartney says. “Inflation on one hand and lingering Covid uncertainty on the other is definitely impacting investor sentiment.”
How large a pullback to expect is anyone’s guess. While equity markets fell over the past two weeks on Omicron-variant news, they have since bounced back, leading some analysts to question the impact of further pandemic developments. Meanwhile, the sell off in tech might be more attributable to the Federal Reserve’s intention to begin tapering and eventually begin raising interest rates. Lingering impacts in technology equities suggests those concerns remain even as investors seem resilient to Omicron’s spread.
“The black clouds are driven by interest rate normalization and the impact on equity markets,” McCartney says, but notes that “Overall though I think a constructive market.”
Even a slightly less robust clip of public listings would allow for a good number of IPOs in the year ahead. Changing investor sentiment on technology and e-commerce could allow for a more diverse array of industry sectors to come to market, he reasoned.
Still, the window for PE exits into public markets might be getting a bit narrower.
–Brandon Zero
