In response to COVID-19, the Federal Reserve and other central banks unleashed huge emergency monetary stimulus programs. We analyze the impact of this stimulus on global capital markets and how it has contributed to a record-breaking H1.
- Following COVID-19 emergency monetary stimulus, global capital markets raised US$5.5trn, a record-breaking figure for Q1.
- In the U.S., investment grade issuance was the major driver, raising US$1.2trn in the first six months of 2020 — a total more than the whole of 2019.
- In global equity markets, US$447bn was raised in Q1, which more than offset the four-year low in IPO offerings. And private equity made up a 17 percent slice of the M&A pie as valuations faltered.
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Global capital markets have enjoyed their strongest ever six-month period in the first half of 2020, raising US$5.5trn globally, a 35 percent year-on-year increase, and the highest figure since records began in 1980. The number of offerings exceeded 130,000 for the first time ever.
U.S. investment-grade issuers were major drivers of activity, surpassing 2019’s full year total to raise US$1.2trn before the summer, while breaking weekly, monthly, and quarterly records on the way.
Despite a near market shutdown, global high-yield was also up 22 percent year-on-year, to a six-year peak of US$251bn.
Why have global capital markets smashed records?
The gains in global capital markets followed unprecedented monetary stimulus, which saw the Federal Reserve slash interest rates to almost zero in March.
The Fed also announced that it will invest US$2.3trn in loans to aid small and mid-sized businesses, and state and local governments as well as fund the purchases of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities.
International bond offerings rose 38 percent to a record US$3.1trn, with Germany, France and the UK accounting for more than one-fifth of total issuance.
Asia local currency debt rose 14 percent compared with the same period last year. However, Japanese Yen debt offerings fell 6 percent to a two-year low.
All industries saw double-digit issuance growth. Retail sector issuance saw a triple-digit increase in in the first quarter, and there were significant issuance increases in Q2 among media and technology companies.
Boom in equities
Global equity capital markets raised US$447bn in the first half of 2020, the highest amount since 2015, and a 41 percent year-on-year increase.
U.S. issuers drove the biggest gains, accounting for 43 percent of global ECM issuance, or US$194bn. Asia and EMEA also saw double-digit increases. In contrast, Japan dipped to a 21-year low of US$6.8bn.
Issuers of secondary market paper were the main beneficiaries.
There were 500 offerings in June globally, an all-time monthly record, which raised US$296bn, a 66 percent increase on the amount raised in H1 2019. Convertibles were also popular, raising US$94bn — their strongest showing since 2007.
Global IPOs were down 21 percent compared with the same period last year, a four-year low, with U.S. listings down by one-third. This was partially off-set by Chinese domiciled IPOs raising US$23bn — a two-year high.
It should be said that global IPOs were back-loaded, with June’s US$18bn in proceeds twice that of May, and three times that of April.
Decline in M&A market
Meanwhile, global M&A suffered steep declines in activity across the board, with global deal making down 41 percent year-on-year, to US$1.2trn.
Deals with a U.S. target saw the steepest fall of 69 percent to US$355bn, bringing the share of U.S. deal-making to 30 percent, which is the lowest on record. Asia-Pacific deals were down 8 percent compared with H1 2019, to US$311bn, a seven-year low. This was barely offset by a 3 percent uptick in Japan to US$39bn.
In contrast, European M&A jumped 37 percent and included five of the ten mega deals — although this was led by the paper-shifting US$107bn Unilever share unification.
Overall, global mega deals (above US$1bn) were down 62 percent, year-on-year.
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The big M&A winners so far in this crisis are private equity acquirers, which have increased their share of activity to 17 percent of total global M&A, despite the value of such private deals falling by nearly a quarter, globally.
Meanwhile, buyout firms were particularly active in Asia-Pacific, where private equity investment rose 13 percent to US$54bn, led by technology, energy and industrials.