More listings from Russia and the Middle East are expected to keep markets buoyant after Europe set the global pace for IPOs in the first half with a 51 per cent gain and topped the US in total issuance.

Equity capital markets activity reached $445 billion over the first six months of 2007 on 3,000 deals, the highest dollar volume since the record set in 2000, according to preliminary data released by market research firm Dealogic.

It was a 19 per cent gain from $375 billion in the first half of 2006.

Despite rising interest rates and more caution from investors, bankers expect issuance to continue at a healthy pace in the second half as European governments privatise businesses, emerging market companies seek flotations and alternative investment vehicles go public.

'We still think the macro environment is very positive, the geopolitical environment is benign and valuation levels when you look at them on a historical basis are still on balance quite cheap,' Deutsche Bank's head of European ECM Sam Dean said.

Initial public offerings totalled $56.3 billion in Europe, Middle East and Africa in the first half, accounting for almost one-third of the region's ECM activity.

Total issuance in the EMEA region was about $164 billion compared with $161 billion in the Americas and $105 billion in Asia, excluding Japan, Dealogic said. Asia posted the healthiest gains, with a 42 per cent jump.

Many investment bankers expect markets to continue their long bull run in the second half, powered by heavy liquidity flow from the Middle East, Russia and Asia.

With central bank interest rate hikes on the cards, however, more new issues are being shelved than in recent years, while others have refrained from pricing their offering at the top of their indicative ranges.

'Interest rates are going to play a much more important role,' said Jeroen Berns, head of European ECM at ABN AMRO Rothschild. 'We expect less buoyant markets in the second half.'

UK hotel owner Vector Hospitality pulled a potentially record-breaking $4 billion IPO in early June, while Spain's Realia was forced to slash its IPO size amid the hike in interest rates.

Nevertheless, real estate companies were among the leading issuers in the first half, with an 83 per cent gain to $68 billion, just behind the financial sector at $95 billion.

'What we have seen in the last eight weeks or so is an element of valuation sensitivity,' said Viswas Raghavan, JPMorgan's head of capital markets for EMEA and Asia Pacific.

'There's no more blank checks,' he said.

'People are scrutinising deals much more thoroughly and if here's any kind of margin for error then people are walking away. And that is here to stay.'

Some consider that an advantage for investors, who, despite turning their noses up at some deals, are happy to buy into quality companies from the hottest sectors. 

'It's more of a buyer's market now, but investors are not shying away from the market,' said Peter Guenthardt, an executive director at UBS. 'People are still happy to look at the emerging markets.'

UBS was the leading global IPO bookrunner in the first half, according to Dealogic, while Goldman Sachs was narrowly ahead of Citigroup in Europe.

JPMorgan was the top global ECM bookrunner by a wide margin and just ahead of Deutsche Bank in Europe. Reuters