Amid deteriorating economic indicators, global capital markets have pivoted in favour of lower risk assets during the first three-quarters of 2022. Most products and regions have seen major year-on-year falls, with the biggest retractions in equities and high-yield debt, as well as the U.S. A milder retreat in investment-grade issuance and among Chinese issuers has led to a rebalancing of capital transfers by region and risk-profile.
- This year has seen the lowest opening nine months for equities since 2003 and is down 62 percent on the same period in 2021.
- In the U.S., IPOs are down 94 percent on the year to $6.6bn. Meanwhile, China has taken a record market-share.
- Investors are making the flight to credit quality as high-yield capitulates to a 13-year low.
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In the first nine months of 2022, the total amount of equity raised across the world was just $369bn, the lowest figure for 19 years. The tally is 62 percent lower than in the same period last year.
Decline in capital markets
Declines have been steepest in the U.S., where proceeds fell 80 percent, year-on-year, to account for just 16 percent of issuance. Meanwhile, China’s more modest 40 percent retreat to raise $144bn gave it the largest-ever share of global equity markets. Overall, Asia-Pacific equity issuance fell 43 percent to $197bn.
The most prominent equity market retreat has been on U.S. stock exchanges, where proceeds from IPOs are down 94 percent on the year, to raise just $6.6bn. By contrast, Chinese exchanges have seen $56bn in new listings in the first three-quarters of 2022, representing a more modest decline of 31 percent. Globally, IPOs have raised $115bn, a fall of 63 percent year-on-year.
EMEA proceeds are down 67 percent to reach a 26-year low, while Energy & Power constituted the largest equity sector for the region. These falls were only surpassed by Japan, where equity issuance dropped to a 30-year low, raising just $5bn.
Meanwhile, the market for follow-on offerings suffered its worst year since 2003, raising just $208bn, 60 percent lower than the record for secondary offerings in any first nine-month period, set in 2021.
As a result, investment banking fees from equity capital markets have fallen 67 percent so far this year, to reach $10.5bn, the worst result since 2003. The largest U.S. banks, which held the top five spots last year, have each seen their fees decline more than 80 percent. Picking up wallet share and dominating the top ten are Chinese banks, led by CITIC.
Corporate debt issuance shrinks
Compared to equity, the overall decline in debt capital markets has been less dramatic so far in 2022, with an aggregate fall of 17 percent compared to the first nine months of 2021, to raise $6.7trn. Meanwhile, the number of new offerings fell a modest 11 percent.
Financials, government and agencies have increased their share of the market, to reach 79 percent so far this year. Excluding these issuers, global debt equity has fallen 35 percent, year-on-year, signalling a more pronounced retreat from corporate debt issuance.
In addition, the downward trajectory for debt issuance continued into the second half of the year, with Q3 proceeds 23 percent lower than in the second quarter, to fall below $2trn for the first time since the end of 2019.
Global high yield down 80 percent to 13-year low
Beneath the headline figures, debt capital markets bifurcated, with investment grade issuance down a modest 9 percent to $3.3trn in proceeds, while high yield offerings fell 80 percent to $112bn, the slowest quarter since the global financial crisis in 2009. Just four markets accounted for nearly three-quarters of all high-yield: the U.S., the UK, the Netherlands and Australia.
Emerging markets issuers raised just $167bn in the first nine months of the year, a fall of 48 percent, with borrowers from India, Thailand, Brazil and Malaysia accounting for 62 percent of all emerging-market proceeds.
One bright spot was Asia’s local currency debt, which has risen 10 percent so far this year to raise $2.6trn, the strongest first nine-month period since records began in 1980.
Investment banking fees from debt capital markets have fallen 28 percent year-on-year. JP Morgan retains the top spot so far this year, with $5.4bn in fees, with Goldman Sachs in second place.