Capital markets have been, are and will be fundamental for economic development both at the micro as at level macro both in that they allow the business community to access an enormous source of financing to achieve its objectives while directing savings from less productive assets to others that are productive, also providing extra profitability for the investor.
The latest report published by AFME (Association of Financial Markets of Europe) analyzes the health of the capital markets in the Old Continent and in Spain during the first six months of 2024. The main conclusion of this analysis is that Spain remains as the fourth largest market in the euro zone and during this semester the companies have increased their financing through capital by 134% (debt issues and equity).
This impulse comes from two paths but highlights, above all, the bond issue and, to a lesser extent, the increase in IPO (IPOs). 8.9% of the total financing of non-financial companies in Spain came from the capital markets, compared to 4.3% in 2023. Looking ahead to the rest of the year, the highest volume of bonds with a grade of investment since 2020 and the highest volume of IPOs since 2015.
In total, there have been 11.8 billion issued with investment grade and 2,700 with a rating of high yield. In turn, Puig’s IPO contrasts with the drought of 2023. 9.1% of the bonds issued carry the ESG label compared to 8.7% in 2023 after increasing by 31%.
Regarding the financing of SMEs, 0.9% of the total came from venture capital compared to 1.3% the previous year. They continue to depend to a greater extent on bank financing and, therefore, this is where AFME sees the greatest potential to increase the presence of financing from venture capital sources.
All this links with family savings. According to the report, Spanish households continue to occupy eighth place among EU countries in terms of savings invested in capital markets, with the equivalent of 63% of GDP between shares, bonds, funds or insurance and pension products. In this sense, the EU average is higher and countries such as Denmark (108%), the Netherlands (173%) and the United Kingdom (145%) are very far away.
The situation in Europe
Regarding the rest of the European Union, the conclusions point to a clear lack of union and poor performance of capital markets in most global indices. “The EU faces an annual financing deficit of 800 billion euros to achieve its digitalization, infrastructure and sustainability objectives,” they state in the report. This penalizes the competitiveness of the EU compared to the rest of the economies.
In essence, what the report indicates is the importance of mobilizing savings, currently estimated at 11 billion euros between cash and bank deposits underperforming in the EU. “Diverting part of these funds towards productive investment vehicles will be essential to strengthen the capital markets ecosystem and ambitious reforms are needed to unlock Europe’s full potential,” they explain.
“There are several structural challenges. We are lagging behind other regions in most key areas, including access to financing for companies and SMEs, fintech ecosystems and market liquidity,” argues Adam Farkas, CEO of AFME. . “To ensure the EU’s competitiveness globally, we need bold reforms to better mobilize capital and unlock private sector financing,” he concludes.
Finally, the report also highlights the lack of integration between countries within the EUas also demanded by the ECB. “Northern European countries, such as Luxembourg and the Netherlands, have deeper markets and greater access to financing while Eastern European countries lag behind,” they add.
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