As the dust settles from the wake of Trump’s inauguration, it is an excellent time to analyse the consequences his presidency will have on equity capital markets and, in particular, the IPO market in the United States.
The Macroeconomic Environment
The ideal macroeconomic environment for a company to IPO is generally during bullish times when there are high investor confidence and low volatility and uncertainty. This is because the investors will have greater appetite for the inherit risk that comes with IPOs.
However, during bearish times of low investor confidence and high volatility and uncertainty, investors are constantly seeking safe havens (like gold) with minimal risk. Consequently, this is not a good environment for companies to successfully IPO in as investors shy away from risk.
This is the primary reason why, on the back of the Global Financial Crisis of 2008, 2009 was one of the worst years on record for the IPO market and with the advent of a tumultuous US presidential election, Brexit and further political unrest in the EU, 2016 too was a very difficult year.
Although markets have currently been very bullish since the results of the US presidential election came through, and the Dow Jones passed the 20,000 mark for the first time, there is still high uncertainty as investors try and gauge and predict what sort of political and economic measures Trump decides to take as the 45th president of the United States.
Further evidence for the potentially low consumer confidence in the markets can be seen from the recent upwards trend in the price of gold, a traditional safe haven for investors.
Hence, as uncertainty levels remain high, it is unlikely that in the short term (next 1-2 months) there will be any major IPOs as both companies and investors will look to analyse the more macroeconomic impacts of the Trump presidency are and what policies are introduced.
The effect that policies have on IPOs will likely be predominantly sector dependent. For instance, it is quite clear that Trump is actively against Obamacare and will repeal it. However, what is not clear is how he plans to replace it. This will hence bring great uncertainty in healthcare, and the biomedical sector as a changing regulatory environment would make valuing and pricing any such companies rather difficult.
Thus, investors are likely to be very tentative with investing in these sectors, and unless Trump announces some concrete plans on moving forward in an Obamacare-free America, the outlook for IPOs in the healthcare-related sectors appears very bearish.
Other Sectors Affected
Similarly, with Trump already scrapping the Pacific Trade Agreement, aiming to renegotiate other trade deals with an American first policy, and actively crusading against China and Mexico, any companies heavily reliant on foreign trade (especially with China and Mexico) are likely to find this an unfavourable environment to IPO in.
However, other sectors like the manufacturing and infrastructure sectors will stand to find the economic environment a lot more favourable as Trump advocates for a push towards an ‘America’s Infrastructure First’ policy. Thus, although it is uncommon to see IPOs in these sectors, any companies heavily involved with infrastructure and manufacturing have a positive outlook.
Furthermore, with Trump vehemently denying climate change, in the medium to longer term, companies in the fossil fuels business and reliant on the oil and gas sector may find it a more favourable regulatory environment with lesser environmental regulations to adhere to. Thus, any IPOs strongly linked with these sectors may be impacted positively.
Lastly, the technology and telecommunications sectors, which tend to have the most IPOs, are unlikely to be impacted in any major way directly by Trump’s policies as he does not seem to have a significant stance in favour or against Silicon Valley. Hence, companies like Snap Inc. and others which have been looking to IPO recently will likely be unaffected.
Thus, the overall outlook for IPOs is not particularly bullish under Trump. However, it is not very bearish either as the major tech relate sectors will largely be unaffected by any of Trump’s outlandish policy claims and have thus no reason to not prosper.
Ultimately, though, the major factors influencing IPOs in the long term will likely be how much uncertainty remains in the market and how positive investor confidence is going forward.