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Dec 11, 2020

The current IPO craze is starting to look a lot like 1999

Airbnb's valuation is similar to what was seen during the tech bubble: New Constructs CEO


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Initial public offerings have been doing extremely well lately, bringing to mind the excesses of the tech bubble in the late 1990s.

Shares in Chinese toymaker Pop Mart International Ltd. jumped as much as 112 per cent in their debut Friday, after home-rental platform Airbnb Inc. closed 113 per cent above its IPO price in New York. JD Health International Inc. surged 56 per cent in its debut Tuesday while DoorDash Inc. soared 86 per cent in on Wednesday.

The FTSE Renaissance Global IPO Index, which tracks the performance of offerings worldwide, is up 82 per cent this year, compared with a 12 per cent gain for MSCI’s all-country equity index. Comparing the current period with the dot-com bubble is hard to do directly because the Renaissance IPO Index didn’t start until 2009, and a Bloomberg index that was around in the dot-com boom became defunct in 2017.

There are some pretty clear similarities between the Bloomberg index versus the S&P 500 in 1998-99 and the Renaissance gauge now, noted Cameron Crise, a macro strategist at Bloomberg. The performance after that in the late 1990s was even more dramatic. If IPOs were to follow the same pattern now, they would have a huge jump still to come -- before a pretty spectacular drop.

“The action in these names is definitely a concern for us,” said Matt Maley, a strategist at Miller Tabak + Co., speaking about the U.S. IPOs.

“However, we’d also note that experience tells us that froth in the IPO market tends to be a ‘leading indicator’ for an important top -- not an ‘immediate indicator’ of a top. In other words, yesterday’s action in the IPO market probably tells us that we’ll see a meaningful correction at some point over the next six to nine months, not necessarily over the next few days/weeks.”

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