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When markets turn volatile, demand for IPOs harder to predict

When markets turn volatile, demand for IPOs harder to predict
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First Published: Tue, Mar 06 2007. 12 05 PM IST
Updated: Tue, Mar 06 2007. 12 05 PM IST
Singapore: The past week’s slump in global stock markets has made it harder to predict whether Asian share sales will match last year’s record in 2007, Credit Suisse’s new investment banking chief Paul Calello said.
“The challenge of another record year is somewhat at the mercy of the markets and how much volatility and uncertainty they provide,” Calello, who in May correctly forecast 2006 would be the best-ever year for Asian stock sales, said in an interview yesterday in Singapore.
A 6% decline in the MSCI Asia-Pacific Index in the past week may curtail investor demand that drove stock sales in the region to $186.8 billion (Rs8,31,022 crore) last year, generating record fees for Credit Suisse and its rivals. Chinese stocks on 27 February suffered their biggest one-day rout in a decade, triggering a slump in global shares.
Last year’s IPO frenzy culminated in the October IPO of Industrial & Commercial Bank of China Ltd, at $22 billion the world’s biggest. Credit Suisse, which ranked eighth last year among arrangers of stock sales in the Asia-Pacific region, advised on the Beijing-based bank’s IPO.
Calello, who will relinquish his role as Asia-Pacific chief executive in May, said a surfeit of funds in financial markets may continue to drive demand for new stocks even as investors grow more selective.
“There’s a lot of liquidity in the market, so good transactions will continue to have significant demand,” he said.
China’s Impact
As the sell-off spread across the globe, it cast a pall on the outlook for IPOs. The Standard & Poor’s 500 Index fell 4.4% last week and the Dow Jones Industrial Average declined 4.2%, while the Nasdaq dropped 5.9%.
The value of share sales fell by a third to $256 billion worldwide in 2001 after the technology bubble burst, sending stocks plunging.
The recent rout began with the drop in Chinese stocks, which was sparked by concern that the government will tighten controls on investment and lending for share purchases. Still, China’s impact on global markets has been “somewhat overstated,” Calello said.
Stocks in the region will “see a strong growth trend but not without some bumps along the road,” said Calello, who will replace Brady Dougan as Credit Suisse’s investment banking head. Dougan was promoted to chief executive.
Successor’s Task
Calello declined to name his successor, saying only that the firm is “investigating internally and externally the best person to take this job.”
His successor should “boldly” invest in the region, particularly in Southeast Asia, Calello said. Investment banks have been focusing their expansion in China and India, the world’s two fastest-growing major economies.
“What you would think is overinvestment in the market that is growing as fast as the Asia-Pacific, very quickly can look like underinvestment,” he said. “You’d have to make sure you maintain a balanced investment across the entire region.”
Credit Suisse will resume its brokerage business in India this month, Calello said. It was suspended from trading in India in 2001 along with several domestic brokerages after the regulator found evidence of price manipulation on several trades.
Calello spoke to reporters in Singapore after opening the firm’s support center at One Raffles Quay in the marina area next to the city’s financial district. The center supports the bank’s asset management, private and investment banking businesses, and can accommodate 1,400 people.
“We have already filled a significant portion of those positions,” he said. “The market environment for hiring professionals in the market has become more competitive.”
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First Published: Tue, Mar 06 2007. 12 05 PM IST
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