The WFE publishes H1 2018 Market Highlights Report
Published by: The WFE Research TeamAug 2018
The first half of 2018 was eventful for stock markets worldwide. While the year started on a high note with domestic market capitalisation and benchmark indices scaling record levels in markets across the globe, February 2018 was marked by a global stock market correction and a return of volatility after a remarkably calm period over 2017. Overall market valuation declined in the months that followed, with market capitalisation at the end of H1 2018 down 1.6% on the end of H2 2017 (though still up on the same period in the previous year). Trading activity (value and volumes of trades in equity shares) was up on H1 2017; however, primary market activity was mixed, with IPO listings down and investment flows slightly up on H1 2017.
Global market capitalisation was up 9.1% on H1 2017, though down 1.6% on the end of H2 2017.
Value and volume of trades in equity shares were up 24.6% and 14.1% on H1 2017.
IPO new listings were down 9.9%, while investment flows were up 4.1% on H1 2017.
Exchange traded derivatives volumes traded were up 17.4% on H1 2017, driven by increases in volumes traded across all asset classes, except commodity futures.
Nandini Sukumar, CEO, WFE, commented: “After a very strong year for stock exchanges around the world in 2017, the first half of 2018 saw a return to widespread volatility, marked most clearly by the global market correction in February 2018."
“Against this backdrop, it is interesting to note the strong IPO performance in the Americas – up 64.5% on the back of technology, financial services and consumer products listings – particularly when compared to a flat IPO performance in EMEA, and a 26% drop in the Asia-Pacific region. We remain in a period of global risk and uncertainty, and this is reflected in the mixed performance of markets and asset classes across the world.”
According to the WFE’s half-year statistics, the key trends of H1 2018 when compared H1 2017 were as follows:
Overall domestic market capitalisation at the end of H1 2018 was 9.1% higher than at end H1 2017. This was due to increases across all three regions – the Americas up 14.9%, Asia-Pacific up 5.3%, and EMEA up 4.3% on H1 2017.
Stock markets got off to a strong start in January 2018, maintaining the momentum observed in 2017, as valuations continued to soar and benchmark indices scaled new highs in several markets across the globe. With positive macroeconomic data coming in from economies across the world, investors continued to pour money into stock markets. The overall market capitalisation reached US$91.8 trillion at end January 2018, the highest market capitalisation in the five-year period under review.
However, the trend of a positive month-on-month growth rate in market capitalisation seen since November 2016 came to an end in February 2018, when a stock market correction was observed in markets across the globe. Global market capitalisation as at end February 2018 fell by 2.5% on end January 2018, removing over US$2.3 trillion in market value. Benchmark indices in several markets dropped significantly. The decline was against a backdrop of a marked increase in volatility at the start of the month, and positive news on wage growth in the US, which, together with corporate tax cuts sparked investors’ fears of faster than expected interest rate hikes to tame inflation. The trend in US markets spread to stock markets across the globe, with other regions also experiencing sharp declines in market valuations. While the Americas recovered from the downturn, with market capitalisation at end June 2018 exceeding the level seen at end 2017 (up 4.8%), the Asia-Pacific and EMEA regions saw market capitalisation fall by 7.3% and 4.3% respectively, in the presence of continued uncertainty caused by geopolitical tensions and the likelihood of a global trade war.
The first six months of 2018 were characterised by a gradual month-on-month decline in overall market capitalisation, with an average monthly growth rate of -1.3%. This was in contrast to the trend observed in 2017 when there was a positive growth rate in market capitalisation over the entire period. In H1 2017, the average monthly market capitalisation growth rate was 1.5%.
The number of companies listed at end H1 2018 was up 1.3% on H1 2017, due to slight increases across all three regions: the Americas up 0.3%, Asia-Pacific up 1.3%, and EMEA up 2.1%. However, overall listings were broadly flat versus the end of 2017 (0.3%), and in fact marginally down in the Asia-Pacific region (-0.03%).
Value and volume of trades in equity shares in H1 2018 were up 24.6% and 14.1% on H1 2017. This was due to increases across all three regions:
Value traded: Americas (+28.3%), Asia-Pacific (+21%), EMEA (+19.9%).
Number of trades in equity shares: Americas (+11.3%), Asia-Pacific (+16.3%), EMEA (+9.8%).
In the five-year period under review, overall value and volume traded in H1 2018 were higher than in the first half of all years except H1 2015.
In the presence of risks and uncertainties, new listings and investment flows through IPOs in H1 2018 got off to a slow start. New listings were down 9.9%, largely due to declines in the Asia-Pacific and EMEA regions. Investment flows were up 4.1% versus H1 2017, however, driven by increases in the Americas and EMEA regions.
The Americas region was a bright spot for IPO activity with both new listings and investment flows increasing on H1 2017 - up 64.5% and 8.3% respectively. The increase in new listings could be attributed to a rise in the number of IPOs on Nasdaq, TMX Group (including the listing of capital pool companies) and B3. Technology, financial services and consumer products were the leading sectors in terms of listings and proceeds.
The Asia-Pacific region saw new listings and investment flows in H1 2018 decline by 26.1% and 10.8% on H1 2017. Increases in IPO investment flows in India, Australia and Indonesia were offset by falls in other markets including China, Korea, Japan, Philippines, Thailand, Malaysia and New Zealand. Similarly, an increase in the number of new listings through IPOs on exchanges in India, Hong Kong and Taiwan were offset by falls across most other markets in the region.
The Chinese exchanges (Shanghai and Shenzhen Stock Exchange) saw IPO listings decline by 74.4% on H1 2017.
The two Indian exchanges (BSE Ltd and National Stock Exchange of India) together accounted for the second largest number of IPOs (110) in a country in H1 2018, with proceeds of nearly US$6.5 billion, driven by steady investor confidence, a positive earnings outlook for financial services, infrastructure, and consumer companies, and a rise in domestic capital in the equity market.
In the presence of a new listings regime in Hong-Kong, IPOs listings were up by 44.1% versus H1 2017. Top sectors by number of IPOs were infrastructure, consumer products and telecom, media and technology.
In the EMEA region, the number of new companies listed through IPOs was nearly the same as in H1 2017, while investment flows were up 31.5% on H1 2017. This was due to a number of large companies coming to market: the listings of Siemens Healthineers (Deutsche Boerse), DWS Group GmbH & Co. KGaA (Deutsche Boerse), and Elkem ASA (Oslo Bors) generated combined capital raised of over US$7 billion. LSE Group and Nasdaq Nordic exchanges led in terms of listings with 57 and 35 IPOs respectively in H1 2018.
Non-IPO listings, which accounted for about 36.8% of the total new listings, were up 29.1% on H1 2017, with only the Americas experiencing a decline (down 8.5%). Asia-Pacific and EMEA listings were up 25.5% and 53.4% respectively.
Investment flows through already listed companies were, however, down 19.4% on H1 2017, due to declines across all regions - the Americas down 7%, Asia-Pacific down 8.7% and EMEA down by a sharp 43.8%. In the EMEA region, where a bulk (71.2%) of capital raising takes place on the secondary market, investor sentiment appears to have been dampened by various factors such as uncertainties stemming from Brexit negotiations in Europe, an impending end to easy monetary policy in the EU, economic turmoil in some markets, fluctuating oil prices, and geopolitical tensions within and outside these regions.
Exchange traded derivatives volumes in H1 2018 were up 17.4% versus H1 2017. This was due to increases in volumes traded across all asset classes except commodity futures which saw a slight decline in volumes on H1 2017 (-0.3%).
Stock options volumes were up 18.1% due to increases in volumes traded across all three regions. In the Americas, where 81% of the volumes were traded, volumes were up 18.9%.
Single stock futures volumes were up 74.3% due to sharp increases in volumes traded in the Asia-Pacific and EMEA regions – up 65.9% and 82.3% respectively - where over 99% of the volumes are traded.
Index options volumes were up 25.9% on H1 2017, driven by increases in volumes traded in the Americas (+22.5%) and Asia-Pacific regions (+42.4%), where 21% and 70% of the volumes are traded respectively.
Index futures volumes traded were up 32.6%, due to increases in volumes traded across all regions: the Americas region up 51.1%, the Asia-Pacific region up 32.4% and the EMEA region up 12.5%.
Currency options volumes traded were up 35.5% predominantly due to increases in volumes traded in the Asia-Pacific region (+40.9%), where 90% of the volumes are traded.
Currency futures volumes were up 21.5%, driven by increases in the Americas (+20.8%) and the Asia-Pacific regions (+66.3%) where 22% and 46% of the volumes are traded respectively.
Commodity options volumes were up 5.2% while futures volumes were slightly down on H1 2017 (-0.3%).
Interest rate options and futures volumes were up 2.8% and 5.9% respectively.
Listed ETFs (Exchange Traded Funds) grew by 9.1% in H1 2018, driven by increases across all three regions. ETFs value traded increased by 28.4%, almost entirely driven by the 28.3% increase in the Americas region, which accounts for nearly 90% of the value traded. The ETFs market in the Asia-Pacific region, although small in terms of market share of value traded (7%), saw turnover grow by 80.8% on H1 2017. Only the EMEA region saw ETF value traded drop by 20.9% on H1 2017. Investment funds listings and value traded were both down 11.8% and 5.9% respectively. Securitised derivatives listings were up 11% and turnover was up 60.1%. Bond listings were up 6.9%, however, value traded was down 44.3% on H1 2017.