Inflation, geopolitics and volatility influenced markets in 2023, sentiment feels like its shifting into 2024 but time will tell if markets have got it right or these themes continue to dominate.

Sticky inflation leading to more rate hikes, ongoing global geopolitics and volatility were the key themes influencing markets in 2023. The IPO window remained firmly closed in Australia, although there were a couple of glimpses of potential reopening’s with the listing of family-owned chemicals distributor Redox, who raised $402 million in its July IPO, and was the largest local listing by capital raised in 2023.

At the time markets were getting excited about what was next after an 18-month lull, and hopes of the local IPO window reopening were raised again in September following the successful US IPOs of SoftBank backed UK chipmaker Arm, quickly followed by grocery delivery business Instacart and marketing automation play Klayvio. However, the takeaway of all 3 of these IPOs was a willingness of sponsors to meet the market on pricing and accepting that valuations associated with the free money era are well and truly behind us – in the case of Instacart, its IPO valuation was a ~75% haircut to its 2021 funding round.

By the time German footwear brand Birkenstock made its underwhelming debut only a few weeks later, the market had again fizzled out, with the stock closing down 13% from its offer price and was widely reported as the worst opening for a listing of a company valued at US$1b or more in the US in over 2 years.

Markets more or less shut up shop to new candidates for 2023, however it had other ideas in the final 8 weeks of year coming off year lows at the end of October as inflation prints showed cooling, the job market tightening a notch and talk of the next interest rate moves, particularly overseas was that of cuts which saw bond yields fall, triggering a rally across the board and thinking that perhaps central bankers might get their goldilocks soft landing after all.

On the back of this, even with the RBA trying to maintain an even keel at least and delivering a November rate rise (its thirteenth in this cycle) the S&P/ASX 200 went from lows at the end of October to close in on all-time highs by the end of the year. The S&P/ASX 200 finished up 7.84% over the course of 2023, rallying over 12% in the final two months of the year and the VIX index also moved in the right direction to provide dealmakers hope the candidate class of 2024 may fare better than the class of 2023.

This performance was outpaced offshore with the tech heavy Nasdaq up more than 53% and the S&P 500 up over 24% for CY23, although much of this outperformance is attributable to the “Magnificent Seven” (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla & Meta Platforms). The failures of Silicon Valley Bank and Credit Suisse earlier in the year feel a long time ago.

Coming back to the local market, it was daylight to the second largest IPO raise with childcare group Nido Education raising $99m when it listed in October. Outside of this, the vast majority of floats were made up of junior resource plays with strong IPO candidates such as Virgin Airlines, MolyCop, Mondiale VGL and Cuscal all flirting with a listing but none quite made it to market over the remainder of 2023. One of the most well-known and watched pipeline candidates over many years, Chemist Warehouse, provided a bit of a Christmas miracle by navigating choppy markets albeit via an unconventional route for a company of its size, via the backdoor thanks to a reverse takeover by Sigma Healthcare assuming regulatory hurdles can be cleared.

ASX welcomed only 45 new companies to the bourse, down from 107 a year earlier – a tough year considering its historical average of well over 120 new listings annually, not helped by the ongoing thematic challenges outlined previously. Take privates and delisting’s continued in vogue, with 146 companies bidding farewell to ASX including some well-known names to retail and institutional investors such as Oz Minerals (M&A), Janus Henderson Group (delisting), Silk Laser Australia (M&A), InvoCare (take private), Splitit Payments (delisting), Estia Health (take private), Blackmores (M&A), and Best & Less (take private).

In private markets the latest publicly available data from Cut Through Venture shows 2023 funding tracking largely to 2020 numbers, with $2.2b deployed across 249 deals in the first three quarters of the year. Employment Hero looks to have got the guernsey for the largest announced raise of 2023, with US investors leading a $263m Series F round and increasing its valuation to just shy of $2b when the investment was announced in October.

The shift in private capital funding of growth at all costs to a more capital efficient model was firmly entrenched throughout 2023, with relative lack of large deals evidencing this (only 3 announced deals over $100m) and many companies who raised at inflated valuations back in the era of free money choosing to become capital efficient, extending their runways whilst still aiming to deliver growth in an effort to grow into those valuations.

With sentiment in public markets having shifted in the last two months of 2023, it will be interesting to see whether that also finds its way into private markets. In 2024 will investors be more willing to bring out the cheque books across a range of funding rounds, or will we start to see further industry consolidation (such as the Mr Yum/Me&u merger), perhaps founders and investors facing challenging conversations over continuing operations or even the return of larger funding rounds remains to be seen.

Whilst it feels like sentiment is shifting there are still risks in the market from those themes of 2023 which will still apply in 2024 and of course, the usual caveats about external shocks from unexpected events in an ever-volatile world.

Was the rally over the last 2 months of 2023 the sugar hit everyone needed that arrived at the end of a tightening cycle, the start of the next bull market or have markets overdone it, priced for perfection and are we poised for a correction? Time will tell. The first big test of the local market will be the upcoming half year reporting period in February, where company earnings and outlooks will be scrutinised.

The RBA’s rate decisions are going to be data driven, and whilst the market has largely turned its back and called the peak in rates, a couple of data prints that fall outside of consensus may force the RBA’s hand again, particularly if employment, spending and/or inflation remain strong.

The two conflicts that hold the world’s attention unfortunately continue, with the Russia/Ukraine hostilities approaching their second anniversary and showing no signs of ending and the more recent conflict in the Middle East threatening to escalate across the region.

Any escalation in either of these conflicts will have negative implications for markets, and with a US election in play in November 2024, the second half of the year will be dominated by news from the campaign trails and whoever is elected leader will have implications for both conflicts. There is also a Presidential election in Taiwan in early January that will be watched closely.

As the macroeconomic environment improves, risk sentiment should return to some degree, and we should expect a more supportive fundraising environment if some of those leading themes impacting markets in 2023 continue to stabilise and even subside.