The Exchange

The Global MARKET Outlook for 2016

By Tom Farley, President NYSE Group

As I participate in this week's World Economic Forum in Davos, Switzerland, I'll be drawing heavily from conversations I've had with business leaders in recent months. As President of the New York Stock Exchange, I’m fortunate to have the chance to meet with CEOs and executives from the world’s leading companies, across a wide variety of industries, who lead organizations of all sizes. And while I’ll leave economic and market forecasts to the economists, the conversations I have with these CEOs are generally a good barometer for the business outlook.

Tom Farley talks with CNBC about about the IPO market, the expected pipeline for 2016, market volatility and what’s being talked about at this year’s World Economic Forum in Davos.
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The other topics I’m hearing CEOs say are top of mind in the year ahead include:

  • Mixed Views on Global Growth – The U.S. economy is growing despite slowing global growth. At the same time, Europe and other regions are still grappling with the financial crisis fallout and a continued need for structural reforms.
  • Impact of China – Given China’s role in the international economy, CEOs are paying close attention to what happens there, especially for companies that have operations in China or rely on exporting to China. A slower economy, value of the Yuan and stock market gyrations are increasingly top of mind.
  • Diverging Interest Rate Policies – The Fed’s interest rate increase has brought a degree of certainty back to the U.S. market. In the EU, the ECB just eased rates, and global executives are watching the UK’s Bank of England over the next year.
  • Currency Impacts – The appreciation of the U.S. dollar will impact different industries in different ways. Importers will benefit from the strong dollar, while export-focused companies may experience some adverse impact.
  • Commodity Price Declines – The decline in commodity prices is impacting certain industries and geographies in different ways. In particular, oil is a massive industry from an investment spending and employment perspective, and it’s very global. This is something CEOs are monitoring to see how long prices across oil, natural gas and agriculture will remain low and how deeply the current low prices impact global economies.

What This Means for Companies Looking to Conduct an IPO

Historically, if you compare market volatility with IPO volume, the lines on a chart would move in opposite directions. When volatility is low, you tend to see more IPOs. As volatility is heightened, you see fewer IPOs. That was true in 2015 when we saw a slowing in IPOs in the back half of the year due to some volatile months (although we still raised $136B in capital and launched 8 of the 10 biggest U.S. IPOs of the year at the New York Stock Exchange!).

While that trend has continued into the first month of 2016, we expect to see a pipeline of leading companies come to market during the year. Why? Because the value of an IPO remains clear. Companies still need capital to expand, invest, and hire top talent, and early investors and founders still need liquidity. The public market offers both, including trillions of dollars of growth capital that only a handful of today’s private companies can hope to access without going public.

In fact, the IPO pipeline is full of companies seeking to access the capital markets this year. As these companies continue to work toward their initial public offering, we expect the IPO market to pick up as the year progresses, and we're excited about the innovative companies and visionary leaders we're talking to.

Price Over Speed: Before, During & After an IPO

In terms of when it’s the best time to IPO, the answer is different for every company. We’ve seen several companies IPO in the midst of market volatility with good results. On the other side, we've seen some companies that prefer to be patient and defer the timing on going public.

And we’re not rushing them. We actively work with companies and their stakeholders to provide education around the process, considerations and benefits of a public listing. Deciding to IPO is a decision that's unique to each company, so our role is to partner with companies to help facilitate their decision in any way we can.

The mentality of finding the right time for each unique company carries over into the IPO day when we’re focused on price discovery, and each day of trading that stock thereafter. At NYSE, we focus on getting the right price, not the fastest price, and you see that in action day after day when companies go public. In 2015, we took just under 15 minutes to open trading for Ferrari's IPO. In contrast, we spent spent more than two hours to make sure the price was right before we opened trading on the 2014 Alibaba IPO. We're willing to adjust and, if necessary, to wait to make sure our issuers get the price that allows for a smooth market open and lowered volatility throughout the trading day.

The NYSE looks forward to another productive year of helping private companies access the capital and corporate solutions they need to innovate and expand as part of the public market.

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