Capital markets have been, are and will be fundamental to economic development, both at the level microphone as at the level macro both in the sense that they allow the business world to access a huge source of financing to achieve its goals while directing savings from less productive assets to others that are productive, also providing additional profitability to the investor.
The latest report published by AFME (Association of Financial Markets of Europe) analyzes the health of capital markets in the Old Continent and in Spain during the first six months of 2024. The main conclusion of this analysis is that Spain stay like the fourth largest market in the euro zone and during this semester companies increased their capital funding by 134% (debt problems and equity).
This impulse comes from two sources but above all highlights the bond issue and, to a lesser extent, the increase IPO (IPO). 8.9% of total financing for non-financial companies in Spain came from capital markets, up from 4.3% in 2023. Looking to the rest of the year, the volume of investment grade bonds most high since 2020 and the highest IPO volume since 2015.
In total, 11.8 billion were issued in Investment Grade quality and 2,700 with a rating of high yield. Puig’s IPO contrasts with the drought of 2023. 9.1% of bonds issued carry the ESG label compared to 8.7% in 2023 after an increase of 31%.
Regarding SME financing, 0.9% of the total came from venture capital compared to 1.3% the previous year. They continue to rely to a greater extent on bank financing and this is therefore where AFME sees the greatest potential to increase the presence of financing from venture capital sources.
All this is linked to family savings. According to the report, Spanish households continue to occupy eighth place among EU countries in terms of savings invested in capital markets, with the equivalent of 63% of GDP between stocks, bonds, funds or products insurance and retirement. In this sense, the EU average is higher and countries like Denmark (108%), the Netherlands (173%) and the United Kingdom (145%) are very far behind.
The situation in Europe
Regarding the rest of the European Union, the findings highlight a clear lack of union and poor performance of capital markets in most global indices. “The EU faces an annual funding gap of €800 billion to meet its digitalization, infrastructure and sustainability goals,” they say in the report. This penalizes the competitiveness of the EU compared to the rest of the economies.
In essence, what the report indicates is the importance of mobilizing savings, currently estimated at 11 billion euros between cash and bank deposits underperforming in the EU. “Diverting some of these funds into productive investment vehicles will be essential to strengthen the capital markets ecosystem and ambitious reforms are needed to unlock Europe’s full potential,” they explain.
“There are several structural challenges. We lag behind other regions in most key areas, including access to finance for businesses and SMEs, fintech ecosystems and market liquidity,” argues Adam Farkas, CEO of AFME. “To ensure the EU’s global competitiveness, we need bold reforms to better mobilize capital and unlock private sector finance,” he concludes.
Finally, the report also highlights the lack of integration between EU countriesas also required by the ECB. “Northern European countries, such as Luxembourg and the Netherlands, have deeper markets and better access to financing, while Eastern European countries lag behind,” add -they.
