Equity Capital Markets

Headwinds and tailwinds for post-pandemic Europe

Duncan Smith, Head of Equity Capital Markets and Equity Syndicate, Europe


Can inflation and interest rate risks derail a promising 2021 for European markets?

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By Duncan Smith
Published July 6, 2021 | 1 min watch
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Key Points

  • The outlook for European companies looking to go public is robust, buoyed by record stimulus, growth potential and economic reopening
  • Further down the road inflation and interest rate rises are potential speed bumps for equity markets that are already at or near record highs
  • However, new tech issues in Europe this year could make it the best year ever and Europe is also poised for success in companies linked to the energy transition

As vaccination programmes continue at pace and economies in Europe come out of hibernation, equity markets face opportunities and potential challenges ahead. While stimulus remains in place and growth potential is good, the outlook is rosy. But markets in Europe are at or near all-time highs and some of this support could already be priced in.

Also rearing its head is the threat of inflation. Right now, central banks are united in describing this risk as transitory, but if inflation turns out to be here to stay and central banks are pushed to remove stimulus and consider raising rates, markets more broadly are not likely to remain as ‘calm’ as they have been - high growth sectors could be particularly impacted where rising rates can have a significant effect on valuations which are driven by long dated discounted cash flows.

“The outlook for European companies looking to go public this year is a robust one. Secondary markets have been very strong through the back end of 2020 and into 2021. Stimulus has really provided a very solid underpinning for equity markets. Obviously, the vaccination rollout is key and there's a lot of optimism about reopening and economic pick-up. You can already see that coming through in economic data. You've seen it in corporate earnings.”

Duncan Smith, Head of Equity Capital Markets and Equity Syndicate, Europe

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Nevertheless, for now there are sectors in Europe that are set up for success. Where Europe once lagged on tech, this year’s new issues could make it the best year on record. Ecommerce, telecoms and the wider tech sector are making up a big part of the pick-up in activity and confidence on the markets. The US has always led the way but this year, Europe is increasing its pace. This year may see 20 billion euros worth of new issues come to market, which would be about 60% of the current running total in the US.

Another theme, which really started in Europe, is companies and sectors connected to the energy transition looking for growth capital. There’s been increasing interest from investors in the space and the universe of companies in the area is also growing rapidly. From generating renewable energy from wind and solar to finding and producing the metals that will be used in electric vehicles, and from battery storage to green hydrogen, the sector is poised for significant further activity.

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