SWITZERLAND: An Introduction to Capital Markets
The first half of 2024 saw signs of a recovery on the capital markets and in investor sentiment. While capital markets continued to contend with the global uncertainty that had already set the tone for both 2022 and 2023, including as a consequence of the ongoing war in Ukraine, the conflicts in the Middle East and geopolitical tensions in particular between the USA and China, certain developments offered hope that the situation might soon improve.
First and foremost, inflation levels were falling around the world, in particular in Europe. As a result, major central banks have begun to slowly and cautiously ease their previously tight monetary policy. For example, the Swiss National Bank lowered its key interest rate in two steps from 1.75% to the current 1.25%. Likewise, the European Central Bank and the Bank of England cut their respective key interest rates, and even the US Federal Reserve lowered its benchmark interest rate by a quarter point to 4.75% from 5%, the first cut in years. In addition, supply chain disruptions caused by the measures taken in the previous years to restrain the spread of COVID-19 gradually improved (albeit still not to pre-COVID-19 levels). Last but not least, the continued, and even accelerated, surge in investor interest in artificial intelligence (AI) has led to a new narrative and a boost to the stock markets in 2024.
In the light of this stabilising macroeconomic environment, IPO activity on Western exchanges picked up in the first half of 2024. Globally, there were 551 listings raising USD52.2 billion, a decrease of 12% in the number of IPOs and a drop of 16% in proceeds raised compared to the first half of 2023. However, this result was mainly due to a slowdown in IPO activity in the Asia-Pacific region. By contrast, the USA, Europe and certain other regions saw solid growth. Europe, in particular, has made a remarkable comeback, with 69 IPOs in the first half of 2024 – an increase of 10% compared to the same period in 2023 – raising proceeds of USD15.2 billion – an increase of 196%. The number of IPOs in the USA in the first half of 2024 increased by 27% to 80, with proceeds increasing by 75% according to EY.
Significant Developments in Switzerland in 2024 So Far
Cut in key interest rate
After raising its key interest rate in several steps in both 2022 and 2023 as a measure against rising inflation, the Swiss National Bank signalled a cautious change in its policy in 2024 by cutting the key interest rate in two steps in March and June from 1.75% to the current 1.25% as of 17 September 2024 as a result of decreasing inflation. Nevertheless, the Swiss National Bank and other major central banks around the world remain careful not to lower interest rates too quickly or too sharply, as this could fuel inflation again. “(A little) higher for (a little) longer” seems to remain the name of the game for the immediately foreseeable future.
Galderma’s IPO on the SIX Swiss Exchange
Switzerland and the SIX Swiss Exchange were at the centre of the largest IPO of the first quarter of 2024 (and one of the largest IPOs in the first half of 2024). In March 2024, the shares of Galderma Group AG, a dermatology company headquartered in Zug, Switzerland, were listed on the SIX Swiss Exchange, raising proceeds of approximately CHF2.3 billion – an amount equal to the sum of all IPOs in Switzerland during the course of 2023.
Based on the first closing price, Galderma’s market capitalisation was approximately CHF15.2 billion, with such market capitalisation increasing to approximately CHF18.9 billion on 16 September 2024.
No other IPOs have so far taken place on the SIX Swiss Exchange.
ESG reporting
As ESG criteria have begun to be included in investment advice, we expect that ESG matters will become more and more of an increasingly significant investment criterion for companies and investors alike. In terms of Swiss legislation and to specify the new ESG reporting requirements introduced by the Swiss corporate law reform in 2023, the Ordinance on Climate Disclosures also came into force on 1 January 2024. This regulation sets out new requirements for non-financial reporting on climate issues.
Sparks SME stock exchange
Following the conclusion of the third edition of the Sparks IPO Academy in May 2024, its fourth edition will take place over the course of a few months beginning in October 2024. The Sparks IPO Academy provides selected companies with a high-level IPO education programme and offers them an opportunity to connect and network with some of Switzerland’s leading capital market experts, CFOs of companies listed on the SIX Swiss Exchange, as well as selected small and mid-cap investors and their peers.
Outlook and Trends for the Remainder of 2024 and Beyond
Election super cycle in the USA
The upcoming US presidential and congressional elections in November 2024 are generating significant market uncertainty, influencing IPO activity on a global scale. Many companies planning to go public are exercising caution, choosing to delay their listings until they can better gauge the post-election landscape. Concerns over potential shifts in economic policy and unpredictable investor sentiment have prompted this “wait-and-see” approach as businesses seek to avoid the risks associated with launching an IPO during a period of heightened political and economic volatility.
Strong equity drivers vs lasting uncertainty
With falling levels of inflation in key economies, falls in key interest rates and strong equity indices, the conditions for IPOs now look better than they have for the last two years. We would hope that companies and banks alike gained confidence in the wake of several successful IPOs in the first half of 2024, including the Galderma IPO. With major central banks easing their monetary policy, investors would be expected to seek opportunities offering higher yields, which is likely to increase liquidity in equity markets, in particular in growth-oriented sectors such as technology and healthcare. AI probably remains the stock market’s driving narrative.
Despite the supportive macroeconomic environment, a number of large IPOs originally scheduled for fall 2024 on US and European stock markets have been delayed to the first half of 2025. The recent US election is also a factor contributing to these postponements. However, it should be noted that the war in Ukraine, the conflicts in the Middle East and other growing geopolitical tensions, as well as the possibility that inflation levels could rise again, will likely continue to feed market volatility beyond 2024. Sellers and banks will need to act swiftly to adapt to the ever-changing market conditions. With regard to Switzerland, the IPO market, which has seen a modest increase in activity this year (largely driven by domestic companies in the industrial and consumer sectors) may benefit from its reputation as a stable and attractive destination for investors and be able to quickly seize future opportunities and face the upcoming challenges in the global market.