The big wave of IPOs in 2021, a record amount, generated not only a lot of excitement in the trading world, but also $594 billion in funding. The 2,097 IPOs during the year were a 51% increase from 2020. Traders were happily promising them due to vaccine-inspired economic optimism and low interest rates. However, many traders ended up with a bitter taste in their mouths because, in December, two out of three newly listed companies were trading at share prices below their offer price.

"The problem is that buyers of these IPOs, as well as secondary market buyers, are making losses," said Paul Abrahimzadeh of Citigroup Inc. A third of US IPOs that year were technology companies, and software makers were among the worst performers. On average, their share prices grew 23% during the first few months, after which their gains began to fade.

Take, for example, Vian Technology Inc., whose share price soared 75% in its debut month but traded 60% below its offering price in early December. And then there was Didi Global Inc., the large passenger transportation company, whose shares in early December were worth half what they were worth in their June initial public offering. Another household name with disappointing results was trading platform Robinhood, whose shares have fallen 40% since its IPO in the last month of the year.

However, not all stories ended in tears. Green carmaker Rivian made its $12 billion initial public offering in November (the biggest in seven years), and share prices the following month were positive, having appreciated 51%. People who bought Affirm Holdings Inc.'s initial public offering in January were pleased to discover that their funds had more than doubled in the last week of the year. Let's review some of the IPO stories from 2021 and see what's on the menu for 2022, with a focus on what's relevant to those involved in CFD share trading.

Why did things go sour?

One lesson analysts felt should be learned from the IPO failures of 2021 was that the purchasing power of companies will be increasingly central in the coming year. “Companies that have pricing and profit power are needed to withstand this post-pandemic world,” said Santosh Rao of Manhattan Venture Partners. A different lesson came out of the Chinese government, forcing Didi Global to delist from the New York Stock Exchange, and Jay Ritter of the University of Florida summed it up by stating that: “There is a strong possibility that we will not see a Chinese IPO in the US for the foreseeable future.” Only 602 IPOs took place in China last year.

In Latin America, political uncertainty held the markets back as the region continued to struggle out of economic woes related to the pandemic. Brazil has hosted 50 IPOs in 2021 but will likely see only about ten in the new year, which has to do with rising interest rates and pre-election tensions. Two markets that really benefited from the IPO push were Abu Dhabi and Riyadh.

This year, there's a list of tech companies waiting for their IPO opportunity, "but the demand has yet to be determined," said Avery Speare of Renaissance Capital. Traders are aware that the Fed's taper will accelerate in the coming months and that inflation remains high. The Covid virus itself, with its new variant, Omicron, also represents a great economic unpredictability for traders.

On the menu

A big initial public offering in January was for battery maker LG Energy Solutions in Seoul. "Given the size of the energy market in the long term, it has high growth potential," suggested Kang Dong-Jin of Hyundai Motor Securities. Analysts also believe that electric vehicle manufacturers and clean energy producers could see some growth in the coming year. Among the companies hoping to go public this year is the social media platform, Reddit. However, analysts believe that traders' appetite for IPOs is not what it was in 2021, particularly due to inflation and general economic uncertainty.

Despite all that we have said, “There are many high-quality companies with proven concepts, profitable business models and excellent track records trading at very cheap valuations,” Ignacio Arnau of Bestinver Asset Management reminds us. Those engaging in CFD share trading this year should stay in touch with central bank monetary policy news, especially in the US, but also health news related to the Omicron spread . As pandemic-related market uncertainty reigns for a third year, the markets are full of opportunities and risks for those who invest in volatility.