Brace for an IPO resurgence as new floats beat the ASX 200 by ~50%

New ASX stocks are beating the old in 2020 and some experts are predicting that this will trigger an IPO revival this year.

pile of coins and the letters IPO with a red arrow going up, indicating newly listed shares price gains

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New ASX stocks are beating the old in 2020 and some experts are predicting that this will trigger an IPO revival this year.

Initial public offering (IPO) platform OnMarket found that year-end IPOs outperformed the  S&P/ASX 200 Index (Index:^AXJO) by more than 48%, reported the Australian Financial Review.

The average return for all newly minted ASX stocks in 2020 was 46.9% compared with the 1.5% drop in the top 200 stock benchmark.

Best ASX IPOs of 2020

The Nuix Ltd (ASX: NXL) share price, 4DMedical Ltd (ASX: 4DX) share price and Aroa Biosurgery Ltd (ASX: ARX) share price are some examples of stocks that surged on the first day of trade.

The IPOs that delivered the best returns last year are the Tesoro Resources Ltd (ASX: TSO) share price, Cosol Ltd (ASX: COS) share price and 4DX share price.

The TSO share price surged over 800% in the period, while the COS share price and 4DX share price gained over 200% each.

Capital raisings crowded out IPOs in 2020

Nearly 70% of the newbies listed in the fourth quarter as capital raisings by established ASX stocks sucked all the oxygen in the earlier part of the year.

The turmoil caused by COVID-19 prompted many ASX companies to go cap in hand to shareholders to shore up their balance sheets.

If investors can buy discounted shares in a capital raising from established stocks, they would typically shun new unproven companies.

Number of new ASX listings expected to rebound

So, while OnMarket claimed that the December quarter proved to be the best quarter for ASX floats in at least five years, the number of IPOs in 2020 are still lower than most years.

But OnMarket managing director Nick Motteram told the AFR that the momentum in the closing months of 2020 is expected to continue into this year.

"It'll continue to be strong until there's an event where market confidence goes out the window or there are some big ones that don't do well," The AFR quoted Motteram as saying.

"The difficulty with any IPO is picking a winner and what's come out of this report is that getting access to as many as possible, putting in a consistent amount and holding for a consistent period is a winning strategy."

ASX gold stocks to lead IPO recovery

While tech is a hot space and could very well continue to be in demand by IPO investors, the sector that could dominate new ASX listings are gold explorers and miners.

Professional services group HLB Mann Judd was also quoted in the report as saying that it expected gold IPOs to feature heavily.

This is despite the recent pullback in the gold price from record highs of over US$2,000 an ounce. Given that economic uncertainty is likely to remain a big feature in 2021, you can't write-off the safe haven asset just yet.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia has recommended Nuix Pty Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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