The worldwide credit cycle has halted Asian IPOs. While money and credit was flowing freely into the Asian markets over the last two years, the pool of money has since dried up. As the markets around the world begin to rescind from highs, money is being drawn away from world markets, particularly the Asian markets.
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Investors are quick to bring money back home after huge losses in both the developed and developing nations of the world. China is the number one creditor to many developed nations, but its markets are mostly financed by private investors around the world. The communist nation gone slightly free market is the number one creditor to the United States government, and private investors return the favor to China’s growing stock market.
Volatility in the equity markets is usually bad news for future IPOs. When market dynamics lead to falling stock prices, firms that hold the majority of new issues do not want to sell. Lower prices and PE ratios around the world scare venture capitalists and angel investors from taking their corporations to market. No one can blame them; lower share prices mean that the sellout brings less money for their investment. The sentiment now is that it is better to wait out the storm than sell into it.
A falling US Dollar also hurts the possibility of future investment into the Asian markets. The US Dollar hasn’t been this low against the Yen since 2005, and never this undervalued against the Chinese RMB. When currency fluctuation is this extreme, foreign investments are unlikely to send in funds. The US dollar buys much less in China than it did just a few years ago.
Housing markets are not helping either. While housing credit is generally tied to the homes, a majority of the debt was sold on the open market as a bond. When borrowers fail to pay, the bonds are written off as losses, which have crippled many small investing firms. The downtrend in the housing market has an overall affect on the general credit market; falling home prices mean more write downs and less available credit.
Asian IPOs have thrived due to foreign investment, but consumer and investment confidence shows that investors are afraid of the markets, rather than willing to invest. Investors too prudent to invest in domestic markets are unlikely to start investing overseas.