The only certainty in uncertain times: expert

Both the listed and IPO markets have shown this year that investors and businesses have retreated into their shells. So what's the one remaining thematic?

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ASX investors don't need to be told twice that the market is going through turmoil in 2022.

The S&P/ASX 200 Index (ASX: XJO) has sunk more than 12% year-to-date, but many portfolios are in the red far worse than that because the mining and energy sectors have been dragging the index up.

The capitulation is best seen in the initial public offer pipeline. 

According to the HLB Mann Judd IPO Watch Australia mid-year report released this week, there are currently only 15 companies preparing to list on the ASX for a total of $121 million.

That compares to 43 at the end of June last year, seeking to raise $1.25 billion.

This shows it's not just investors that are frightened. Businesses seeking investment have also gone into their shells.

So far this year, IPOs have raised just $790 million — a minuscule amount against the $2.9 billion harvested in the first half of 2021.

HLB Mann Judd partner and report author Marcus Ohm acknowledged that turbulent market conditions have depressed the IPO market.

"We expect that macroeconomic and capital market conditions will continue to impact the IPO market in the second half of 2022."

The one shining light, much like the ASX 200, has been the resources sector.

It has dominated IPOs this year, with 44 out of 59 listings representing mining companies.

Even in chaos, these companies have a bright future

So it is no wonder that Ohm reckons the only current reliable thematic is lithium.

"On lithium, there's just a massive gap between demand and supply at the moment," he said.

"A few years ago, there was more supply on tap — so that was suppressing growth in the lithium price. But that's gone now and the sources just can't meet the demand."

According to Ohm, just the global transition to electric vehicles (EVs) would see any surge in lithium supply be immediately used up by rising demand.

"Just the EV usage is predicted to go up by 50% over the next two years," he said.

"All those battery manufacturers and Tesla Inc (NASDAQ: TSLA) have got to pay those prices to lock in the supply. If you don't have the supply, you have no business, effectively."

He said this is why it's important to invest in ASX lithium shares that seek new sources, not just the existing producers.

"If you don't have a healthy exploration industry, you don't have a future," he said.

"I think, lithium, you can confidently predict that's going to do well."

Historically, plenty of resources IPOs are for explorers just starting out their journey.

And despite the depressed equities market, those listed this year have done pretty well out of the blocks.

"In terms of share price performance across the materials sector, companies generally outperformed the broader market, recording on average a first-day gain of 19%."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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