The eye-popping IPO for Yandex, a Russian search engine few Americans have ever heard of, which managed to raise $1.3 billion on the NASDAQ, is raising more questions about whether we’re in a new tech bubble. So are we? Probably, but not the kind you might think.
Despite the hype, we’re not yet back to the days of Pets.com. At this point, investors are mostly focused on a few big firms, and compared to the height of the tech bubble, the number of tech IPOs in the past year has been fairly low. Plus, a lot of the firms going public this time around are actually real businesses with real revenue, as opposed to all the penniless start-ups that foamed up the markets during the dotcom boom.
But just because the rise in tech IPOs has been slower doesn’t mean we’re headed in the right direction. The slow but steady climb in tech listings over the past few years has been accompanied by a sharp drop in U.S. listings overall, making tech IPOs a bigger part of the U.S. game. From 1995 to 2010, listings on U.S. exchanges dropped from 8,000 to 5,000, while the number of listings on non-U.S. exchanges grew from 23,000 to 40,000. As more emerging markets, especially in Asia, diversify out of bond markets, fixed income, and currencies into equity positions, they’re turning to familiar, more local exchanges to raise capital. Except when it comes to tech.
As more foreign companies go global, the U.S. has become a global tech magnet. The number of Chinese tech companies listing on U.S. exchanges, for instance, has more than doubled over the past few years. Why? Because foreign companies think American investors have a sweet tooth for tech. U.S. exchanges tend to offer deeper pools of capital for tech investments than other international exchanges, where investors tend to be more conservative. Even the London Stock Exchange, a popular destination for foreign IPOs, is known for its stodginess compared to the U.S.
Amid tougher global competition, U.S. exchanges see their tech-savvy rap as an opportunity for growth. Last year, thanks to an intense PR campaign in Silicon Valley, the NYSE won more than 40% of the U.S. tech IPO market, up from its average of 12% from 2000 to 2008. The strategy may up its profits for the next few years as more foreign tech companies cash in on U.S. markets, but it’s an iffy endeavor for the U.S. economy long-term. Just like with any portfolio, if U.S. exchanges put all their eggs in one basket, they increase market risk.