Kay McCarthy, head of Jersey office at The International Stock Exchange, discusses market trends, the impact on listing volumes and the exchange’s recent launch of a new private markets offering
MANY of the central themes impacting markets and the global economy at the beginning of 2023 have not changed. The principal market catalysts that have been in focus, namely inflation and rising interest rates, continue to remain front and centre as we reach mid-year. What is interesting is that the expectations around timings have changed.
The banking crisis which erupted in March following the downfall of Silicon Valley Bank and Credit Suisse prompted a swift response from central banks in order to stabilise the sector and stop what was feared to be a full-scale contagion. Although markets may be calmer now, the turmoil from the crisis is still being felt, with worries that historically stable bond markets could experience further volatility. However, it is clear that, as a result of the financial sector turmoil, the end of the monetary tightening cycle has moved much closer.
Against the volatile background and despite the cost of borrowing continuing to rise, global bond issuance has rebounded slightly in 2023, according to S&P Global Insights. The recovery in issuance has been driven by corporates, particularly investment grade and high yield, both in the UK and Europe, and, together with new issuance, there has also been a rise in refinancing deals coming to the market.
Mergers and acquisitions roundup
While global M&A activity has been growing annually over the past several decades, 2023 had a slow start as dealmakers continued to navigate difficult macro-economic conditions, accelerating ESG pressures and increased regulation. There has been a softening of M&A activity globally, as well as increased caution from buyers who are already in the market, making it more challenging to close deals.
An S&P Global Intelligence report found global private equity deal value and volume fell year on year in March as fears of a global banking crisis roiled markets and scared off participants.
In the first quarter of 2023, global M&A activity plummeted to its lowest level in more than a decade. According to Bloom-berg, of the US$559 billion spent across 12,200 transactions, just US$182 billion came from 4,200 acquisitions involving private equity firms – a 59% drop from the US$439 billion invested in the first quarter of 2022.
To manage these headwinds, private equity managers set their sights on smaller target companies, favouring deals that were less reliant on leverage or which required smaller equity contributions. With trillions in capital ready to deploy, private equity firms are estimated to be sitting on vast amounts of unspent cash raised prior to the downturn last year, which could fuel an upsurge in takeovers this year. A report from Bain & Co found that the industry was sitting on some US$3.7 trillion of liquidity at the end of 2022.
While the volume of deals has declined, it has remained well above pre-pandemic levels. Some of these challenges are expected to lift as we get further into 2023, particularly when debt markets find a new normal.
Outlook for the second half of 2023
Although inflation has declined as central banks have raised interest rates and food and energy prices have come down, underlying price pressures remain. The last few months have shown that, although the direction of travel is relatively clear and fears of a recession having taken a back seat, central banks have probably not quite finished raising rates but are closer to the end of the cycle and we are likely to see lower inflation, slower growth and the end of monetary tightening by the end of 2023.
While listing activity on TISE has been buoyant during the first half of the year, the headwinds which are impacting the capital markets and M&A have resulted in weaker volumes, but we anticipate that this will pick up in line with the wider improvement in market conditions towards the close of 2023.
Private markets update
Over the course of this year, TISE has expanded its product and service suite with the launch in late April of a new private markets offering. While TISE operates a well-established and highly respected public market for bonds and equities, this new offering is an innovative service for private companies.
TISE Private Markets provides unlisted companies with access to an integrated set of tailored electronic trading, settlement and registry solutions, enabling them to have full control of their dedicated marketplace.
The launch of this offering represents a significant milestone in the execution of our strategy to diversify and scale up the business and is major landmark in both the history and future of the exchange.
In conjunction with TISE’s well established public market, this new offering also complements the wider financial services ecosystem of the Channel Islands and enhances the suite of services we can offer alongside our local partners and stakeholders to the global market.
Kay is a chartered fellow of the Chartered Institute for Securities and Investment, a chartered wealth manager, a member of the Institute of Directors and a Member of the Jersey Compliance Officers Association.
She is a financial services and investment professional with more than 25 years’ experience in stockbroking, investment management and client relationship management.