Thinking about the next six months: market infrastructures in a time of pandemic

Published by: Urs Rüegsegger, Chairman, SIX Swiss Exchange & Chairman, WFE Aug 2020

Welcome to the third quarter. At the WFE, we have just concluded our latest Board meeting, always a time both for reflection and for planning the future as 18 of us, representing every geography, asset class, size and development, come together on behalf of the industry.

I am therefore particularly conscious of the fact that I was more optimistic in March and June about the development and resolution of the pandemic than I am today. Unfortunately, we have to note that in many countries – after the first positive results — infection rates have worsened. This includes countries that made great efforts in April and May to get the virus under control and were initially successful in doing so.

This raises some serious challenges: we still have no clear indication as to how fast economies might snap back and what the economic recovery will look like. On the one hand, there are signs that many — especially large — companies have not been hit quite as hard as originally feared. On the other hand, we have to accept that some industries will take years to return to their previous levels of performance, if ever. As if this view needed a confirmation, the CEO of Novartis this week dampened expectations. In his opinion, the pandemic will keep us busy well into 2021.

And, looking at the WFE’s complete first-half statistics (published in full in Focus this month), we see that while the second quarter of 2020 saw many indicators quickly moving towards their pre-pandemic levels, especially in June, the overall results suggest markets are still behind the levels seen at the end of last year.

At the end of the first-half of 2020, domestic market capitalisation amounted to US$ 88.56 trillion, according to WFE statistics. This is a 1.2% increase on H1 2019 and up 19.7% on the first quarter of 2020. The quarter on quarter uptick was significant in all three regions: Americas grew the most by 23.3%, followed by EMEA (18.2%) and APAC (16.3%). This increase largely took place in April when global markets saw a 9.8% increase in market capitalisation. This represented US$ 7.25 trillion added to the market globally.

However, the total number of new listings through IPOs and investment flows through IPOs fell sharply by 36.5% and 42.7% when compared to the second half of 2019.

A time of notable IPOs

But then, while IPO listings were down in the Americas region, investment flows were up thanks to some notable IPOs. The largest IPO in the region this year was Royal Pharma which raised US$ 2.2 billion in June 2020. Other large IPOs were Warner Music Group (US$ 1.9 billion) and ZoomInfo Technologies (US$ 0.9 billion). The APAC and EMEA regions also had some notable IPOs: Hong Kong Exchanges and Clearing hosted JD.com (the largest IPO this year) and NetEase Inc which raised US$ 4.5 billion and US$ 3.1 billion respectively, while LSE Group listed China Pacific Insurance Group and Italian filter maker GVS raising US$ 2 billion and US$ 0.6 billion respectively.

So markets have played their fundamental role through the crisis. They have been critical in sustaining local economies throughout the pandemic outbreak and afterwards, ensuring markets remained resilient, trusted, and efficient. Their role in the economic recovery will be fundamental.

When we reflect on the last six months, the abiding theme of the industry has been resilience and a striving towards this resilience. While no one can guarantee zero failure, it’s reassuring that market infrastructures were robust in the six months of the storm to date. Now we have to ensure that all the other parts of the ecosystem that the exchange sits in the midst of are equally reliable since we know that we are only as strong as the weakest link.

So if resilience has been the theme of the industry over the last six months, despite intense volatility, through attempts to ban short-selling, through attempts to close markets that investors and issuers need to be able to price assets and manage risk, how then should we prepare for the next six months?

As we look at the uncertain future, I’m firmly convinced that we need to think about growth and the economic recovery agenda. What is our role, at the centre of capital markets, in enabling that rebuilding of the economy and in enabling an inclusive, equitable recovery? 

Transparency, equality and access for all

As an industry, exchanges and CCPs have always lived by the values that characterise open and inclusive public markets: transparency, equality and access for all. The other value that we live is closely linked to our role as a mechanism for the redistribution of wealth: the fundamental premise of regulated market infrastructure is that we want to bring together those who need capital or money with those who have it to distribute.

So amidst the doubt, the uncertainty, the fear, the strange life that all of us continue to lead in these unprecedented times, I want to speak to you of hope and of optimism.

As an industry we have always overcome and find a way back when we are lost. At the WFE, we are committed to being part of that solution, part of the route back to growth. Market infrastructure is more relevant today than it has ever been. I am convinced that we will overcome and that we will remember this time of challenge also as a time of opportunity: an opportunity for us to build back better.

As an industry and at the WFE, we are committed to helping everyone in our ecosystem find that future.