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Key Points
- European ECM Market volumes are down by as much as 75% year-on-year, but that’s coming off the back of record highs in 2021.
- Consumers continue to spend so far, but the outlook is uncertain if prices continue to rise.
- However, despite lowering estimates of economic growth, growth is still the expectation for now, not a recession.
- Investors were focused on hyper-growth, now there’s an increased focus on near-term profitability.
Volatility is the great enemy of equity capital markets, dampening activity and sentiment as investors adopt a wait-and-see posture. That reaction has sent European market volumes tumbling 75% year-on-year as energy prices soar, the Ukraine crisis continues, and recovery from the pandemic is slowed. However, it’s important to remember that this fall is so dramatic because of last year’s record highs.
It’s certainly the case that European consumers are facing challenging circumstances and their confidence is dented by rolling crises and rising prices. But while the Ukraine crisis economically represents a stagflationary impulse, the question remains, how long will it go on? The European economy entered this crisis with renewed strength and could yet prove resilient enough to maintain growth.
Activity also tends to return fast after a crisis, as soon as the market stabilizes. However, the stocks that are attractive to investors are likely to change. From hyper-growth picks in a loose monetary environment, investors are likely to turn their focus to companies with near-term profitability. Given markets will likely open more quickly than you think they might our advice for issuers is to be ready to tap them when they do.
“Companies that offer both attractive growth as well as near term profitability will absolutely be able to raise equity capital when markets normalize.”
DUNCAN SMITH, HEAD OF EQUITY CAPITAL MARKETS AND EQUITY SYNDICATE, EUROPE
