Bankers expect the volume of share sales in Europe to climb in the second half as companies rush to repair balance sheets and build up firepower, though any signs of a prolonged recession could dent investor appetite.
European companies raised $90 billion (Dh330.57bn) in equity and other deals in equity capital markets (ECM) in the first six months of this year, according to Thomson Reuters data.
That could swell to $225bn to $275bn for the full year, some bankers estimated, potentially a 50 per cent jump from last year's $179bn.
"The recapitalisation theme will certainly continue. There are still a number of companies across a variety of geographies and sectors that need to fix their balance sheets," said Edward Sanky, Head of equity syndicate at Deutsche Bank.
"In the second half, I think we will also see an increase in equity issued for M&A financing, as well as a continuation of convertible issuance and secondary blocks."
It would mark a big swing from the first half, when the volume was down 28 per cent from a year earlier, reflecting unresolved problems at many firms. The second half is also set to benefit from the momentum of a sharp acceleration in activity in the second quarter.
Globally, while M&A revenues declined for the third consecutive quarter, ECM underwriting fees in the second quarter more than trebled from the previous quarter to reach $7.6bn, a record 47 per cent of the overall investment banking fee pool.
Investor mindset is shifting from recession to recovery as fund managers reduce bond exposure in favour of equities. The FTSEurofirst 300 has rallied almost 32 per cent since hitting a lifetime low on March 9, encouraging a slew of rights issues and reopening the convertible bond markets.
"We have benefited from a sharp recovery from the low levels earlier this year, driven by some form of economy recovery and the fact that equities, by any yardstick, were cheap," said Laurence Hollingworth, Co-head of equity capital markets for JPMorgan Cazenove.
The rally has had a clear impact on companies. Miner Rio Tinto, for example, ditched plans to tie up with Chinalco and switched to a $15.2bn rights issue in the biggest fundraising outside the bank sector this year. Most recent equity fundraisings have been well received. Rights issues from Italian utility Enel and British private equity firm 3i all saw more than 90 per cent of shares taken up by investors.
Racing to hit the market before the summer break, an increasing number of European firms have also chosen to launch quick share offers, typically smaller in size than rights issues but which can be completed within a day.
British retailer Sainsbury last week raised $419 million in just a couple of hours and a sale of $312m worth of convertible bonds was more than 15 times covered. UBS raised $3.5bn in a tightly discounted private placement last week in a fast execution.
Equity valuations are becoming more demanding, however: just two per cent of fund managers now consider European equities undervalued, down from 10 per cent in May and 41 per cent in October, according to a poll released last week by Banc of America-Merrill Lynch.
Global stocks have dropped three per cent in the past two weeks as the rally shows signs of fatigue ahead of the summer break.
Underlining how quickly the mood can turn, UK IPO candidate NewRiver Retail decided to shelve its £250m ($406m) listing last week. The deal, arranged by Merrill Lynch , failed to find investor support for even the minimum requirement of £100m to float.
British retailer Debenhams last week also announced a mere 30 per cent take-up from its shareholders for a £323m cashcall.
"If there is weakness out of the US or China in terms of economic data coming through the summer, and that the recession proves to be longer than what people now expect, that could result in a slowdown in new issue activity," said Thomas Gottstein, European ECM Co-head of Credit Suisse.
But asset managers remain keen, for now, to put cash to work after building up reserves when the financial crisis deepened in the second half of last year. Assets in money market funds are at 27 per cent of Europe's equity market value.
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