Despite a recent surge in stock indices amid hopes of a resolution to Middle East conflict, trouble is brewing in Europe’s IPO market.

Some positive pronouncements towards peace were all that was needed to push US stock markets to record highs last week, breaking through levels seen in October 2025. This move erased not only the losses from the breakout of the war in the Persian Gulf but also those unleashed by pre-war bearishness around AI disruption on software, AI bubbles and growing fears over private credit.

But several capital market participants speaking to ECM Pulse over the past fortnight have been nervous around the rally.

While headlines looked good at the end of last week, especially around Iran’s brief reopening of the Straits of Hormuz following an agreement of a ceasefire between Israel and Lebanon, there still seems way to go before a lasting agreement to end the conflict and unblock disruption in global energy supplies.

Headlines over the weekend will have dashed some of that optimism, with Iran and the US re-engaging in naval hostilities in the strait and Iran pointing to a huge difference in negotiating positions which need to be overcome before any agreement.

ECM market participants are concerned that issuers will have read the extend of the market move as a bullish indicator, when in fact bankers suspect it was likely driven by technical factors combining with the more positive headlines.

Expiries of expensive options and the huge amount of hedging around the conflict likely led to a monumental short squeeze, turning what should have been a solid move into a huge market rally.

“The market melted up last week, with some of our traders pointing to short squeezing and expiry of options,” noted one banker. “But they also think there is a chance for the market to retract from these highs through the summer when bad news filters through on inflation and earnings.”

With long-only investors adopting a more defensive stance throughout the last few weeks, despite the market rally, the banker said he was highly concerned about the European IPO market.

Other IPO advisers are also keen to stress that they are remaining highly flexible on deal optionality given the swings in sentiment.

“It is crazy times at the moment and very news flow-driven by Trump,” said a second ECM banker. “It is hard to make any real conclusions based in these wild daily moves.”

“We are in a bit of a quiet period for possible IPOs at the moment given it’s a little while before companies can launch with 1Q results, so we are not yet shifting timetables but will have to make a decision closer to the launch date.”

Performance woes make a tough sell even harder

Against the backdrop of market volatility and economic uncertainty, European IPOs are also dogged by the incredibly poor show from recent listings.

European IPOs with a deal size of more than USD 100m, and priced since the start of 2025, have produced a cumulative aftermarket loss of around 7.6%, according to Dealogic data and calculations by ECM Pulse.

Given a weighted pop of around 14.5% a week after pricing, the lack of subsequent performance is concerning, although not a uniquely European phenomenon given the underperformance of several US deals priced last year.

The poor trading of both Verisure and CSG, Europe’s two largest listings since Porsche in 2021, is a particular disappointment – with the listings down around 25% and 13.5%, respectively, as of last Friday’s close (17 April).

“Almost all the recent European IPOs are underwater even the hot defence ones,” said the first banker. “Some of the stocks initially traded well and therefore people took profits, which turned them negative very quickly.”

The aftermarket performance of large transactions like CSG and Verisure, and lower recent issuance levels, has driven Dealogic’s IPO Health Index for EMEA below its most recent high in January and well below levels seen during more fruitful European issuance periods in the last few years.

IPOs that had been mooted to possibly come before the traditional summer break include Franco-German defence contractor KNDS, Swiss airline catering business gategroup and UK driving services company RAC – the latter two are owned by financial sponsors.

Alongside them, Digi is reported to be gearing up to launch the listing of its Spanish division as soon as this week, although the business is maintaining optionality on possibly delaying the deal.

But the recent performance of European listings is a serious concern given that equity valuations may look toppy and the huge uncertainties hanging over the global economy.

Investors will want more resilient structures and likely far more generous pricing to offset the wider risk.

“The IPO product is still fundamentally broken,” said an ECM investor. “Recent performance shows that the discounts are not wide enough to buffer against market and sector downturns – to be honest a lot of this has to do with wider buyside not being disciplined enough in these deals.”

“But lots of these investors who chased that allocation have been burnt now, and I hope now the market sticks to far wider discount demands.”

While some investors may participate in IPOs at monumental discounts that they feel might better protect them from market risk around the war, the bid/ask is likely to be simply too wide for many issuers’ comfort.

Several IPOs are likely going to be stuck until there is a more lasting peace, even at times that benchmark equity indices look very bullish.