• US IPO activity is currently booming as the founders and owners
of mature private technology companies see a window of opportunity to cash out after missing out last
year. • Annualized, the value of US IPOs during the first four months of this year exceeds the
previous high seen in 1999 at the peak of the dot com bubble. • One reason this year’s US IPO boom
is not creating indigestion in equity markets is that it is small in volume terms, i.e. after adjusting
for the size of the US public equity market. • Another reason is that equity offering activity has
been rather weak this year outside the US including secondary offerings. • It is thus not
surprising that global net equity supply proxies such as the change in the free float of the MSCI AC
World index remain depressed. • Therefore we believe this year’s US IPO boom presents little threat
to global net equity supply which has been hovering close to zero since 2016 in an unprecedented run. • In our mind, any threat to equity markets for this year stems from potential changes in equity demand
rather than supply.
• We are entering the seasonally weaker part of the year which could call for some consolidation,
especially given the very strong year-to-date upmove. Having said that, our global equity strategists
believe that any weakness remains a buying opportunity, as the rally is likely to gain a fundamental
confirmation in 2H. The strategy team is expecting Chinese and European PMIs to move higher into year
end, which should support better earnings delivery. The Q1 results are generally coming out better than
the reduced expectations. US revenue growth in particular is healthy. Furthermore, they believe that bond
yields are likely to inflect higher, which could drive a broadening in market participation. Their core
OW was Tech and they were unexcited by Banks over the past year, but have last week upgraded the Banking
sector to OW. Banks were the worst performing sector over the past 12 months and have become cheap. Banks
are a key play on improving global activity trends and potentially higher bond yields. In addition,
peripheral spreads are well behaved, with Banks likely to benefit from this. Italian NPLs as a share of
total loans are falling sharply and Banks have reported notable improvement in balance sheets. Euribor
curve drag might not get much worse and credit spreads are holding in. They fund this move by taking
profits on Insurance, as the sector appears to have overshot bond yields. In addition, they also reduced
Healthcare from N to UW as the group trades inversely with bond yields and could be impacted adversely by
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