(Bloomberg) — After a bumper first half for European equity offerings, business has become tougher for the region’s dealmakers as market jitters start to surface.

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The volume of share sales declined about 20% year-on-year in the third quarter, according to data compiled by Bloomberg. September was quieter than it was last year, reflecting a less-favorable market backdrop, hesitancy ahead of key central-bank decisions and a late Labor Day holiday, the traditional starting point of the autumn deals window.

The prospect of rising interest rates and inflation, along with unrelenting geopolitical instability, makes the outlook for the fourth quarter little rosier. And with the pipeline of European IPOs starting to thin, dealmakers will be counting on resilient stock prices and corporate earnings to maintain elevated levels of capital raising and investor demand.

“While headline indices are near all-time highs and VIX is fairly benign, there are clearly concerns underneath the surface around things like rates, inflation, geopolitics,” said Ashish Jhajharia, head of equity capital markets for Europe, Middle East and Africa at JPMorgan Chase & Co.

Momentum has slowed since a first half marked by buoyant equity issuance as companies sought to fund a splurge in spending on acquisitions, power grids and AI infrastructure. European bourses saw $89 billion of stock sales in the first six months of the year, 36% higher than a year ago, according to data compiled by Bloomberg.

Not that offerings have dried up completely. Last week, the UK’s Land Securities Group Plc, France’s Rexel SA and Belgium’s Warehouses De Pauw raised a combined $1.7 billion through separate stock sales to help fund deals and growth.

Bankers argue that the investment case behind a corporate fundraising drive that has defined much of the year is still intact and will help sustain activity in coming months, even in the face of tightening monetary policy and concerns around artificial intelligence.

The resilience of European company earnings will be another key factor in making equity deals attractive.

Earnings for MSCI Europe firms jumped 18% in the second quarter, the strongest showing since mid-2022, according to data compiled by Bloomberg Intelligence. Clues on the sustainability of that will be provided in the upcoming results season, with a lot of optimism already baked into the region’s equities.

“Higher interest rates are generally less supportive for equities, but resilient earnings provide an important counterweight,” said James Palmer, head of EMEA ECM at Bank of America Corp. He expects investors to continue to back offerings from businesses with compelling fundamentals, including new listings.

IPO Outlook

For IPOs, the short-term outlook is more muddled. While Airtel Mobile Commerce NV is pressing on with plans to go public in what could be London’s largest IPO in five years, some companies have pushed back plans until market conditions improve. Others are exploring alternatives like continuation funds and private sales.

“ECM in Europe this year has been a lot less about IPOs,” said Ed Sankey, head of international ECM at Citigroup Inc. He expects capital increases and other issuance from publicly traded companies to dominate the remaining months of 2026, before a revival in the IPO market next year.

According to Silvia Viviano, head of ECM at UniCredit SpA, fund managers are still willing to back credible growth stories, although valuation is more of a sticking point in IPO discussions. She pointed to the performance of recent European listings as a cause for investor sensitivity, with those in the last 12 months having produced an average negative return of 17%, according to data compiled by Bloomberg.

“Cash ECM is a bit of a buyers’ market, and it’s imperative to make deals that work for investors,” Viviano said. “Once we have momentum back in the market, the valuation gap will narrow, and IPO activity will accelerate.”

For Paddy Evans, co-head of EMEA ECM at Deutsche Bank AG, candidates can continue to wait for better markets “or we can accept that there is unlikely to be a perfect window where the market is 100% risk on.”

“The best case scenario for next year is sort of B+ market conditions, and companies and their shareholders will have to make difficult decisions as to whether it’s time to go ahead or not,” Evans said.

Convertible Bonds

A silver lining of rising borrowing costs has been a resurgence in regional convertible bonds, a market that over the last two years had seen little action. Convertible bonds typically pay lower interest than regular debt at the expense of diluting shareholders if the conversion option is exercised.

Blue-chip borrowers like Deutsche Boerse AG and high-yield or unrated issuers such as semiconductor group Soitec have been tapping the market to fund growth or refinance existing borrowings.

“Convertible debt can also be more competitive in a higher interest-rate environment as an alternative source of capital for companies,” said Luca Erpici, head of EMEA ECM at Jefferies Financial Group Inc.

Deal Optimism

Overall, dealmakers remain optimistic of robust appetite for offerings out of listed companies, including capital increases, shareholder selldowns and convertible bonds.

Lawrence Jamieson, co-head of EMEA ECM at Barclays Plc, expects a steadier string of companies selling stock after the latest batch of central-bank meetings, with the rationale for corporate fundraising still strong.

“Central bank reactions to inflation have been largely in line with expectations, but the geopolitical backdrop in the Middle East continues to wax and wane, as does the rates outlook,” Jamieson said. “It will be a watching brief as to the extent it derails the ECM calendar, particularly IPOs.”