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Mixed fate for IPOs

Strange market conditions prevail as companies face investors that are spoilt for choice and hedge funds that are increasingly cautious.

This October several sizeable IPOs were forced either to cut their price range or cancel their plans altogether as investors pushed for steeper discounts and lower valuations. At the same time, Industrial and Commercial Bank of China’s record-breaking IPO, which could raise as much as $22 billion, has attracted more than $500 billion of demand.

That decent companies’ IPOs should be stymied during a time when the volume of equity capital being raised worldwide is at its highest ever is unusual.

On the one hand some in the market might argue that it shows that investors are showing a healthy degree of discernment, choosing carefully which companies they buy. Others believe that different factors might be at play.

“A market where some things get 10 times oversubscribed and others fail to get any traction at all is strange because in a normal rational market there should be a price for anything,” says Diego De Giorgi, a managing director at Goldman Sachs. “One factor behind this is that few investors are willing to take contrarian views at the moment. Hedge funds that have not had a great year so far are becoming cautious. No one wants to bet the house on anything controversial when there are just a few months left to go in the year.”

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