Capital Market Outlook 2021
traditionally, at the beginning of a year, we look into the crystal ball and make forecasts for the development of the Capital Market. The highs of the global stock indices suggest only positively, but one should assume that a forecast is very difficult in the sign of the pandemic.
Even as many companies in the pandemic struggle with business losses and liquidity difficulties, governments around the world are pumping countless billions into the economy and social systems. This must lead to a devaluation of money in the medium term, and so a German business magazine recently wrote: “Inflation is coming”.
If you factor out the energy price that fell in Germany in 2020, the price increase in 2020 was already 1.1 percent. Food prices in particular rose 2.4 percent. No wonder real assets such as (residential) real estate, equities and gold are currently in demand.
Even bitcoin is gaining popularity, as it cannot be printed on paper as often as you want, like Euros and US Dollars. In addition, Central Banks, and thus banks, are resisting deposits through negative interest rates. In a recent interview with the FAZ Newspaper, Martin Lück, Head of Capital Market Strategy at Blackrock, also comes to the recommendation to invest in more inflation-protected investments.
Obviously, many companies want to take advantage of this positive environment for the capital markets this year. The IPO pipeline is well filled. In Germany, Auto1 (known as “Wir kaufen dein Auto de”), the online platform “Mein Auto de”, the Continental subsidiary Vitesco, Vantage Towers (mobile), Suse Software, Synlab, Check 24, Ceramtec, Springer Nature and Wintershall are in the starting blocks.
Renell Bank has already been mandated for the support of two IPOs this year. Those who want to shorten the route to the Capital Market use so-called shell companies, which are already listed on the stock exchange but are not or no longer operational. Here too, we are currently seeing high demand and are currently accompanying three transactions. Also SPACS (Special Purpose Acquisition Companies) are booming. These are companies that are provided with plenty of capital at the IPO and then go in search of a takeover candidate. With 248 SPACS, such transactions accounted for about half of all IPOs in America in 2020.
Which industries are in demand? This still includes tech companies, which are also given high growth potential after the Corona pandemic. And again real estate companies are highly favoured by investors. This also applies to the market for SME bonds, which we particularly value.
Last Friday, Pandion AG became the first company in Germany specialising in residential real estate to issue bonds (20 million volume, coupon 5.5%). This continues a trend from 2020, almost half of the issue volume of German SME bonds came from the real estate sector last year.
The quarterly credit survey of the European Central Bank (EZB) showed for the third quarter that banks in the Eurozone are becoming more cautious in lending to companies. It therefore stands to reason that companies that need financing right now in the Corona crisis should use the capital market. We are actually seeing record issues on the capital market, but also the cancellation of IPOs and difficulties in placing bonds in total.
In this context, the last Adidas bond issue was quite astonishing. Adidas does not have to pay interest on 500 million Euro in the next 8 years. The bond was oversubscribed several times. Previous Adidas bonds yielded 1.25% – 2.25%, but these were not “sustainability bonds”. So the topic of sustainability seems interesting. The (sustainable) bond conditions are still formulated in a rather vague manner and are usually easy to meet. This is because there are still no uniform ESG (Environment, Social and Governance) standards. This is about to change. With the “Action Plan on Sustainable Finance”, the EU Commission has launched an extremely extensive legislative initiative to, among other things, Harmonize the ESG disclosure standards. The first regulatory technical standards are expected by December 30th of this year.
Dr. Gertrud Traud, chief economist at Landesbank Hessen-Thüringen, commented on the topic of sustainable investments on the 9th Investment Fund Day of the Börsenzeitung: “No company and no investor will get around the topic of sustainability. This topic will occupy us for the next 10 years and then it will be implemented by everyone and the question of whether it is sustainable or not will no longer be asked at all. “
Larry Fink, CEO of the world’s largest asset manager Black Rock, recently announced in an interview that he plans to trim his company towards sustainability. This also involves analyzing the portfolios for sustainable investments.
The trend should therefore continue to accelerate. On the one hand, driven by a corona-induced change of heart in society. On the other hand, it will be mandatory from next year that every retail customer must also be asked whether they want to invest sustainably. Both, increased customer demand and regulatory pressure, are ensuring that fund companies are bringing more and more sustainable portfolios onto the market.
Renell Bank is also currently working on setting up a fund that uses ESG rules for investment decisions.
Conclusion: The alignment of investment products according to sustainable criteria will continue inexorably and enables access to a steadily growing group of investors.
In the first quarter of 2019, Renell Bank again maintained the top rating „AA“ of Deutsche Börse for sound performances in the area of Designated Sponsoring.
Banks or securities trading houses act as designated sponsors, which increase the liquidity of the stock through buying and selling offers in mid and small caps and are thus a guarantor for the price quality of managed shares. Renell Bank is one of 30 active Designated Sponsors on the Frankfurt Stock Exchange. Deutsche Börse introduced a rating system to transparently present and compare the performances of liquidity providers. The rating includes the average quote duration, the average spread and the quota arrangement volume of a Designated Sponsor.
With its presentation on the topic “maximum selection of funds & ETFs – the easy way to a diversified portfolio” Renell Bank was able to contribute again to the success of this years “Düsseldorfer Anlegertag” (open house for retail investors at Düsseldorf Stock Exchange) on March 9th and enriched the balanced range of topics at this year’s fair.
Once again Renell Bank participates in the Trading Charity Day of the Frankfurt Stock Exchange.
On 6 December 2018, Deutsche Börse AG and the Specialists active at the Frankfurt Floor will donate the transaction and trading fees received from shares, bonds, funds, ETFs and exchange-traded products (ETCs and ETNs) on the Frankfurt Stock Exchange trading venue on that day.
Through the “Trading Charity – trade and help” initiative, Deutsche Börse AG and the companies acting as Specialists will support four local charities: “KinderPalliativTeam Südhessen”, “Leben mit Demenz e.V.”, “Frankfurter Verein zur Unterstützung von psychisch kranken Kindern und Jugendlichen e.V.” and “MainLichtblick e.V.”.
Just recently, on April 3rd, Spotify did it: a stock market listing without issuing new securities and thus (almost) without the use of expensive investment banks; frankly spotify raised some funds before in a private placement round. However, this type of Going Public is also called IPO-light or direct listing.
Usually, investment banks determine the value of the company and the related issue price of the (new) shares ahead of a planned IPO. These shares will then be offered to interested investors as part of a roadshow. The investment bank receives a proportionate placement fee for this work, which is often around 3%.
A direct listing eliminates all this. Only a part of existing shares are offered for sale on the stock exchange. New capital is not necessarily flowing to the company. The price is determined by an auction procedure on the stock exchange. Most of the time higher prices can be achieved.
This form of Going Public was also seen in Germany, Evonik went live in a similar manner – a technical listing with previous private placements where the major Investors sold part of their holding.
In addition to a law firm that is filing the stock exchange prospectus, essentially only one securities trading bank is required, as a link to the stock exchange to act as applicant and finally the market making for the shares. This is a considerable reduction of costs and overall resources. Renell Bank as securities trading bank and member to several stock exchanges and has accompanied several technical stock market listing in recent years.