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Emerging Markets

Overview — Covid-19 and the capital markets: impact, response and recovery


In mid-May GlobalCapital hosted a specially convened panel of investment bankers, investors and a market infrastructure provider to discuss how capital markets have reacted to the coronavirus crisis and how they might play a role in the recovery of the global economy. The discussion, which took place remotely over Zoom, was the opening panel discussion of the Global Borrowers & Investors Forum, which this year is being brought to you in virtual form via a special digital publication on our website.

The timing of the panel was opportune. We are only three months into the coronavirus crisis and yet so much has happened since March — or earlier, if you are based in China and other parts of Asia. Indeed, the bond and loan markets of January and February, and the infrastructure and regulations supporting them, look almost as if they are from another age.

So severe and unprecedented has the crisis been that the response by governments, regulators, banks, borrowers and investors has also had to be unprecedented in its size and ambition. To some extent, they have learned from previous crises and knew that they had to move at break-neck speed and deliver on a vast scale to prevent a health and economic crisis turning into a financial one. 

But so much of what they have done has been for the first time, whether it is the US Federal Reserve stepping into the junk bond market and buying high yield corporate bond ETFs, the European Commission effectively mutualising a sliver of its members’ debts through its €750bn Next Generation EU plan or the UK, which is having to raise £225bn of bonds in four months — yes, just four months! — to finance its emergency measures. The scale of the crisis means there is no playbook for the capital markets to reach for. 

Even though much of the impact of the crisis is surely yet to be felt — including mass unemployment across the world, heavy losses in the banking sector thanks to a new, Covid-19 vintage of non-performing loans and perhaps even stagflation — those in the capital markets are beginning to turn their attention to the recovery. Many hope it will be green in colour — indeed, the European Union’s Next Gen plan has the environment at its core. 

While capital markets have embraced ESG bonds over the past 10 years (with more than $300bn issued in 2019, of which $250bn was in green format) the consensus is that we have barely scratched the surface in terms of what is needed to be raised to control CO2 levels and pay for adaptation and resilience. Meanwhile, some are worried that the coronavirus crisis has, somewhat understandably, relegated environmental concerns as the world deals with the health emergency. 

But as another participant in this panel points out, the climate crisis has not gone away. It has a potential fallout equivalent to many multiples of this current pandemic — including putting billions of lives at risk.

Nevertheless, panellists were encouraged that governments and their societies have shown, through the response to the corona crisis, what they can do when they put their minds to it.

Participants in the panel were:

Atul Sodhi, head of global debt capital markets, Crédit Agricole CIB

Friedrich Luithlen, head of debt capital markets, managing director, DZ Bank

Louise Wilson, joint managing director (Projects), Abundance Investment

Michael Metcalfe, senior managing director, head of multi asset strategy, State Street Global Markets

Shrey Kohli, head of debt capital markets and funds, London Stock Exchange Group

Moderator: Toby Fildes, managing editor, GlobalCapital 


GlobalCapital: Atul, how does this crisis compare with others you have worked through?

Atul Sodhi, Crédit Agricole CIB: I’ve spent much of my career in Asia and we saw our fair share of crises there. And now I’m living here through this crisis at a time when Europe is, in a way, at its epicentre. 

The big difference between the previous crisis and the one now is that the banks and the financial system were part of the cause of the 2008-2009 crisis. This time the financial sector and the banking system will be part of the solution. We are seeing that through the way the regulators and financial intermediaries have reacted — we are trying to oil the wheels and make sure economies are running, rather than collapsing under the pressure of the pandemic.

Friedrich Luithlen, DZ Bank: Atul’s right — the banks aren’t the problem this time. It is a pandemic we are having to deal with. It is not the first pandemic that has hit Europe, but the last one was 50 years ago. So it feels unprecedented.

The lockdown measures have a massive impact on the real economy; although, in capital markets, the numbers have mostly been buoyant this year. We’ve seen a 63% rise in supranational, sovereign and agency bond issuance, including govvies, and a 40% rise in corporate bond issuance. 

We’ve seen close to the disappearance of covered bonds over the last eight weeks: a little bit out of France, a little bit out of Austria and Canada. But we are about €30bn shy of the issuance volume up to this point last year. Financial institution credit issuance, meanwhile, is pretty much on the same level as before. 

But it feels very, very different from the last crisis. The initial shock and impact in the capital markets was maybe as strong as 2008-9, maybe even stronger by some accounts. 

But the reactions, on both the fiscal and the monetary side, with the €750bn Pandemic Emergency Purchase Programme from the European Central Bank, have been swift. Obviously, policymakers have learned their lesson. So, after an initial short period of shock, of maybe two or three weeks, we got into a more constructive mode in the markets again. This constructive undertone is continuing.

Shrey Kohli, London Stock Exchange Group: What we saw at the end of February, and the beginning of March, was pretty much a once in a generation shift in volatility. The Vix hit 83, which was beyond the level even in 2008. 

And there was a very interesting discourse because of the intense volatility; even policymakers were talking about whether markets should be open at all. 

But one of the things which shows the resilience of the way the capital markets infrastructure operates is that both primary and secondary markets have remained open and robust during this period of volatility. 

Soon after the UK lockdown was introduced in March, London Stock Exchange had our largest trading day, with 2.9m trades. Markets have remained resilient — circuit breakers that ensure markets function in an orderly manner kicked in. Market participants have been able to deal with new information and, to the extent that’s possible, reach a price that reflects an accurate view of where the market is. 

On the primary markets side, we’ve seen about $5bn of issuance in equity markets from March to the start of May 2020, and an increase of more than 30% in capital raised across SSA, FIG and corporate issuers who list their bonds on London Stock Exchange. Capital has been raised primarily with the purpose of recapitalising balance sheets, given immediate short-term needs, as well as financing long-term goals. So, public markets have proved their mettle during this period, which is positive. 

One of the biggest issues associated with the current situation is the social dimension of not being able to physically be with each other and having to develop new ways of working.

GlobalCapital: Louise, you were working in equity capital markets at UBS in 2008, so at one of the mini-epicentres of the last crisis.

Louise Wilson, Abundance Investment: One of the last things I did before I left UBS was help shepherd through the largest ever rights issue. That was for UBS itself, to paper over what ultimately was a very small part of the gaping hole that was blown in its balance sheet. 

The comments made have been interesting, and I understand where colleagues come from when they say finance was at the heart of the last crisis — or precipitated it — but was not at the heart this one. But I don’t think I can agree.

At least part of the reason we’ve got this pandemic is that as a society we still put the economy and everything that attaches to it at the top of the tree. I very much hope that as we come out of this pandemic, people will be much more focused on what is really important and that we won’t put the economy above everything else.

Now, we obviously still need an economic recovery. But it would be nice to think that we might learn a lesson, because this pandemic should be a real wake-up call for all of us about some of the failings in society — failings that are driven by this constant framing of everything we do around economic growth — and really focus on how humanity and society can learn to live within our planetary means. Otherwise, we’ll have another one of these. 

And of course we shouldn’t forget about the other crisis, which is climate. We have shown through the response to the coronavirus crisis what we are prepared to do and what we can do when we really put our minds to it. I very much hope that we will continue with that resolve and take the lessons from this forward to really get on top of the crisis that puts hundreds of millions — in fact, billions — of lives at risk.

GBIF Virtual 2020 | Louise Wilson

Michael Metcalfe, State Street Global Markets: I think even if you had a 100 year old on the panel who had lived through the Great Depression, their experience would not be especially helpful to gauge what we are currently going through. 

It’s a crisis of our current economic model and it’s a human tragedy. The only reason you haven’t had to add on the term financial crisis is down to policymakers, who deserve a good deal of credit for that, so far. 

I’m not saying that a financial crisis is in any way equal to the economic crisis we are seeing. Obviously, the economic and human losses here are far bigger than the financial markets, and I agree with Louise’s points to an extent. 

However, financial markets would have the ability to make this crisis significantly worse, in terms of the human economic cost. And so far, I’m happy to say, it doesn’t look like that’s happening. 

So everything that’s going on in financial markets might look like it’s of secondary importance. But it would have been very easy for the current situation to turn into something far worse than the Great Depression, had financial markets not been stabilised in the way they have been. 

Wilson, Abundance: I agree with some of what you’re saying there, Michael. But I don’t really give too much credit to financial markets — other than for doing what they should always be doing, which is moving finance through the system. The credit has to go to the central banks and policymakers who have pushed through the fiscal stimulus and come up with the initiatives. When the crisis hit, the banks were shut. For us as a small business the doors were absolutely closed. There was no way we would have got any money. All the initiatives have come from government. And even then, the small business community had to desperately lobby the government for more initiatives, as the money just wasn’t getting into the sector at the beginning. 

But an important point to make is that the risk has been significantly put back on to the taxpayer. The cost of this crisis will be borne by the taxpayers. We are back to exactly the same scenario as after the last financial crisis.

Luithlen, DZ Bank: There is a big discussion going on in Germany at the moment about how we curb lockdown measures, because we need economic growth again. It’s often framed in a way that has economics and health as two opposing forces. But I think it’s actually quite valuable to think of these two together — that one is a necessary condition for the other. 

My second point is around the banking system. In a way, we are plumbers and it is our responsibility to facilitate fiscal spending and central bank programmes to address a problem. However, there is an argument to be made that a banking system, like Germany’s, and also to some extent France’s, has an advantage, because it’s so granular. You still have bankers at the local level that engage with SMEs. They understand them on a different, direct level — credit decisions are not funneled through a one-size-fits-all credit decision administered in Frankfurt or Paris or London. That is probably a systematic advantage that we entertain on the continent to some degree. It feels that the combination of effective plumbing and local banking kept credit flowing in Germany.

Sodhi, Crédit Agricole CIB: Just responding to Louise, who was a bit critical of the banking system, at the end of the day the banking system is run as a commercial enterprise. But no commercial enterprise can respond to this crisis with a commercial objective only. And I strongly believe that the banking system has not only supported its businesses and its clients, but has also in some forms gone beyond the call of duty. Of course, the pandemic is beyond just the financial system on its own, and all the players — the government, the regulators and the banking industry — have played crucial roles.

Wilson, Abundance: I’m not critical at all, I just want to make sure that the credit for how we are getting out of this crisis is given where it’s due. Policymakers, regulators and central banks have acted in a pretty decisive and unprecedented way to get us out of this. It’s actually the financial system that now has a huge role to play in the next phase, to take the opportunity and make sure that we don’t slip back into doing what we were doing before, in this drive to get back to some sort of economic recovery. Let’s make sure it’s the right economic recovery. 

Kohli, LSEG: Fritz made a very interesting analogy of being plumbers. As a market infrastructure provider, we are responsible for the pipes, but the pipes also have valves. And when the valves get clogged, the system may incur problems. 

But thanks to the regulatory ecosystem involving stakeholders such as the Financial Conduct Authority, the Prudential Regulation Authority, the Financial Reporting Council and ourselves responding with not just precision but also speed, the infrastructure has continued to work. Examples include allowing companies to delay the announcement of preliminary financials by two weeks, allowing AIM companies another three months to publish annual audited accounts, relaxing pre-emption principles to support non pre-emptive issues by companies of up to 20% of their share capital, or the PRA and FCA making very pragmatic statements about the implementation of covenants by investors, not just in the loan markets but in wholesale investment grade bond markets as well.

All these, along with government support, have enabled businesses to continue operating in an unprecedented period of stress. My grandmother — who has been through a lot — says she has never seen a situation like this before. This helps to show you just how unprecedented this all is.

One of the lessons learned is that decisive and quick action can help support businesses. The real test will be the way we serve businesses and society over a longer period of time. And this is where I think we need to continue to be forward thinking. 

Each of the members of this panel are pretty cognisant of the issues we face. The availability of public capital for businesses is certainly one, and the ability of businesses to raise finance in a sustainable manner is another.

GBIF Virtual 2020 | Shrey Kohli

GlobalCapital: One of the responses of the capital market over the past six to eight weeks has been the launch of labelled Covid-19 response bonds. What do you think of them and how have they helped?

Luithlen, DZ Bank: We were involved quite early on with one of the first, a dollar bond for the International Finance Corp. To identify and label a social SDG mapping to a Covid-related use of proceeds was straightforward and easily executable in the market.

Ideally, however, we would like to kill two birds with one stone. We would like to do green rather than social bond programmes as a response to the crisis. Thus, we refinance fiscal expansion programmes with a green end. We would get the social element on top. 

There are a couple of obstacles to this dual use. One of them is, of course, the time limits of the measures. You want to put those funds to work very quickly in the real economy to support a V-shaped recovery, or as close to a V shape as possible. And you don’t have time to align a social Covid response goal with environmental goals. 

That said, these are precisely the discussions we will be having in connection with the Franco-German €500bn recovery fund initiative and the European Commission’s €750bn plan.

Sodhi, Crédit Agricole CIB: We’ve been very active in this market and we are continuing to try to bring in new innovations as well. There is a fairly strong pipeline.

On one hand, these types of bonds are addressing issuers’ needs, at a time when there is a need for them to spend more money to help combat the crisis. But, importantly, it is also accessing a pocket of liquidity in the investor base that has appetite to channel money into social purposes.

The issues so far have done very well. And a lot more issuers and investors are watching to see how they go and are beginning to prepare to issue or invest themselves. I’m very optimistic that we will continue to see more and more of these types of bonds.

Kohli, LSEG: One of my responsibilities is heading London Stock Exchange’s sustainable bond market, our home for green, social and sustainability bonds. Launched in 2015 as the green bond segment, it has expanded as the markets have evolved. 

Covid-19 response bonds have taken various shapes and forms. Some have been use-of-proceeds bonds under a social framework, where the project eligibility is really well defined — for example, funding access to healthcare or sanitation, among others. 

The first issue we saw was by a supranational, the International Finance Corp, a $1bn bond. But there have been others — for example, by the Nordic Investment Bank, which notified investors that some uses of proceeds went beyond its social framework and so decided to call it a sustainability awareness bond.

Meanwhile, Indonesia launched its bond without a framework in place, but was clear that the proceeds were to go towards mitigating both the short and longer-term impacts of the pandemic. 

The important thing is to be transparent with investors about what the bond does.

We responded quickly following the International Capital Market Association’s comments about the relevance of social bonds in the second or third week of March, when we announced that London Stock Exchange would waive any admission fees related to social bonds when the use of proceeds was to mitigate the impact of the pandemic. 

This has been really well received. It has helped improve the awareness of social bonds as an asset class, and this initiative has been followed by other exchanges as well. 

I would like to see issuers who would not normally consider a social bond framework considering it in the long run. It is a useful funding tool and allows issuers to access investors that they may not have had access to before.

GlobalCapital: Have these labelled bonds helped galvanise investor interest?

Kohli, LSEG: If you look at the stats, there has certainly been good appetite. The market was opened up by supranationals, the triple-A rated credits. As the window of opportunity became more stable, you saw credits across the investment grade curve coming to the market with Covid-19 response bonds. 

We work with a lot of emerging market corporate and bank issuers who access the bond market, but I think the jury is still out on the level of issuance we will see from them. It really depends on their response to the pandemic.

Luithlen, DZ Bank: In May the IMF revised its estimate of how much additional government borrowing had to be done over the next few years to deal with Covid-19 and its economic fallout. The number stands now at $9tr. 

So, when you ask: ‘are SRI investors particularly galvanised by Covid-19 bonds?’ the answer is yes, there has been good participation by them in the trades we’ve seen. But when we talk about the EU’s €100bn SURE programme or about potentially up to €240bn of Enhanced Conditions Credit Lines of the ESM, when we talk about the €156bn additional funding from the German government alone, plus the German Länder — and the list goes on — there just won’t be enough pure sustainable investment demand to satisfy the supply of bonds. Some of these financing programmes will have an ESG label; some will not. But if one gets the numbers into proportion, one realises that the Covid-related supply will be a lot larger than dedicated SRI funds in the medium term.

GBIF Virtual 2020 | Friedrich Luithlen

Metcalfe, State Street: The labelling might help certain specific markets, and knowing what the money is going to be used for and being able to put a social tag on it if you are investing in it is probably helpful. 

But, to Fritz’s point, the cost of the fiscal response is so large that it’s going to get lost in the wash a bit. The primary issuance is going to be by sovereigns, because policymakers, the fiscal authorities, are the ones that stepped up. 

We are of course watching very closely the role of central banks in this — and whether the requirement can be funded. It’s one of the things we have been watching right from the start, particularly in countries like Italy, where, given the fiscal responses we are seeing, markets can see the supply that’s coming. There’s no doubt about it. And yet, actually, yields have been pretty controlled. 

A lot of that goes back to the importance of what policymakers are doing together. And so, in Europe, for sovereigns, I think there will actually be negative net issuance this year, because the ECB has stepped its programmes up so much that it is actually buying all the debt that’s coming out, and more.

This huge policy response has helped stabilise markets. But can markets stomach it? So far, the suggestion is that they can. But could they stomach it without the central banks buying as much as they are buying? That’s not clear. 

But you see things like Standard & Poor’s not downgrading Italy to junk. That’s really important news, because if it’s the policy response that’s keeping markets stable, then the policy response has to be able to continue and that’s a question of credit, really. And so far, credit is hanging in there. 

GlobalCapital: The ‘E’ bit of ESG looks like it has been put on the back burner as we deal with the ‘S’. It might be understandable, but is it a worrying development?

Wilson, Abundance: 2019 was a was a remarkable year from the perspective of ‘E’, in that the awareness and the desire for action on climate and environment took a huge step forward, and it culminated here in the UK with 2050 being legislated as a target for net zero. And that is being followed now in other countries throughout the world, which is fantastic to see. So yes, this pandemic in some ways is like a kick in the teeth for that initiative. 

Ultimately, climate is the real crisis. The fallout from climate could be equivalent to many multiples of this pandemic. What has been encouraging, though, is that, despite what has been going on, we are still seeing some big strides being taken and actually a lot of green capital markets activity taking place in recent weeks. 

But I still can’t understand how or why we are so slow to make the change that is staring us in the face. On the discussion we have just had about SRI and non-SRI bonds, and whether labelling Covid‑19 is helpful or not — to my mind, we are labelling the wrong things. We need to be labelling the stuff that is working against the future of society and the future of the economy and the future of humanity.

We should be talking about the anti-social bonds, not social bonds. The onus of proof in finance is all put on to the issuers and the investors and the money that’s trying to do things that make our world a better place for us to live in.

I get so frustrated by our inability — because of the kind of history we have — to call that for what it is. We shouldn’t be talking about green bonds; we should be putting the onus on brown bonds. 

If you’re ever going to talk about positive impacts, you should also be talking about negative impacts — impact should be a term that is never used on its own. 

I’d be really interested to hear what the other members of the panel have to say about that and how quickly this all needs to happen. We need to get to a place where we stop walking with eyes wide open into a crisis which is much, much bigger than Covid-19.

Sodhi, Crédit Agricole CIB: If you just look at the pandemic in the very short term, it has been the biggest blessing in disguise for the environment — if you look at pollution levels, the number of flights, the number of people on the road, the carbon footprint of each of us. Many of us need to travel frequently to see clients and members of our teams. I hope that when the pandemic is over we will keep some of the good habits of having a lower carbon footprint. 

But just because the environment topic has moved away from the headlines, it doesn’t mean that a lot isn’t happening. We have seen companies continue their push to be better corporate citizens throughout this crisis. Just look at the oil and gas companies, some of which have announced carbon neutrality timeframes. Meanwhile, a lot of banks and financial institutions are changing their policies to ensure that they are more environmentally friendly. 

While this is a trend that has been in place for the last few years, there is no going back. I’m pretty sure once the pandemic passes the environment will take its place in the headlines again. 

A third thing to say is that there is still an evolving global consensus around the topic of environment. We haven’t yet found a consensus and momentum that will help us in the long term.

GBIF Virtual 2020 | Atul Sodhi

Luithlen, DZ Bank: Louise is perfectly right that excluding certain businesses from financing that we deem environmentally bad is the sharpest tool we have in the box.

The debt capital markets do not provide that tool, however. We rather entertain a positive list of attributes through the use of proceeds embedded in the taxonomy. However, if you look at the way the banks now conduct their loan business, exclusion lists are being used. You are increasingly hearing public announcements from Bank ‘X’ or ‘Y’ about how it is no longer financing coal or fracking, usually as part of its efforts to create a better sustainability profile for itself. That indeed is a key driver for many of these companies to rethink their business models. Regulators further catalyse this development by increasingly pushing to include ESG risk into financial risk measures.

GlobalCapital: We have all had to get used to working in different ways over the past 12 weeks or so. Many of us have transferred from the trading floor to the kitchen table, working remotely and away from our colleagues and clients. How have you found this change, and do you think we will embrace some of these changes so that they become permanent? And has the infrastructure coped?

Kohli, LSEG: It has been a major change for all of us. Part of being in debt and equity capital markets is that there is an element of trust which underpins markets and builds relationships between the businesses that require capital and the investors who will provide it. 

Initially the market was just adjusting to the new normal — can we all access video calls? How do companies conduct roadshows? How do investors participate in AGMs? It’s good that these conversations have happened, because they would have happened at some point in the future — the pandemic has accelerated the process.

From an infrastructure perspective, the topic then moves to looking very closely at the third-party technologies you rely on. For example, can you have your AGM if there is a technology outage which renders a particular software unavailable? 

The next phase — and something we think about very closely because of the 2,500 issuer relationships we have across our markets — is how we continue to develop the infrastructure to conduct business in a regulated manner, with service level provisions to a certain standard that you expect of your trading systems? Whether this be through livestreaming, the way you negotiate termsheets and contracts and the way information is provided to participants through the life cycle of a trade. 

At LSEG we are working on initiatives for all of these. I guess this is how all our businesses will evolve in the future, whether you are a bank, an investor or a stock exchange.

Metcalfe, State Street: It’s too soon to tell. It will depend a little on how quickly a vaccine can be developed. In the meantime, we’ve all learned that certain functions can be done from home. The term resilience has been mentioned a few times; resilience is being tested and in most cases it’s being passed. 

But if a vaccine is slow to arrive, the very shape of offices will be very different for quite a while. Certainly for functions like research, which I perform, I would imagine that we’ll be doing many more video conferences. The future will have a mix of more virtual events and probably less travel. And we are now more used to the technology, which we’ve rapidly learned how to use.

GlobalCapital: How about from a banker’s point of view? Will your clients demand you go and see them as much in the future, or will they be more accepting of video conferencing calls? Will they award a mandate without you having to go and see them at the drop of a hat?

Sodhi, Crédit Agricole: At least in the immediate term, people are accepting the reality that you can’t travel, so you do it over a phone. Now almost every company or bank has got a favourite system, be it WebEx, Microsoft Teams or Zoom. People are adapting. And for a lot of issuers it is a change that will last for a long time. 

I would expect that, after the crisis, we will have a lot of situations where we will not travel. We could have local teams in the clients’ office and teams from other parts of the world dialling in by video link.

There will certainly be some situations where travel will be indispensable. In those situations, one can expect we will need to travel.

GlobalCapital: So it’s going to accelerate towards something we thought might eventually happen anyway?

Luithlen, DZ Bank: Virologists entertain this notion of ‘the hammer and the dance with the tiger’. The hammer is the lockdown as an initial and indiscriminate reaction to the first outbreak, i.e. the first encounter with the tiger. The dance is the second phase of dealing with the pandemic. The picture represents opening up a little bit here and there and seeing what effects it has on the disease and the spread of it — seeing what you can do without being eaten by the tiger and adjusting accordingly. That’s what the Germans are doing currently. The dance is going to stay with us for another 12 months or so. During that time, we will see a lot less travelling, quite naturally, because clients won’t necessarily want to receive us.

As regards intercontinental travel, I don’t fully agree with Atul. Because you have to bridge the timezone, you need to be on location — it’s going to be difficult to have everybody in an awakened state around the table otherwise. 

But I can imagine many of the SSA clients that have a specific ESG agenda will tell us not to fly to, say, Copenhagen or Helsinki but instead do a video conference call. 

We will all put greater emphasis on the big annual events like the Global Borrowers & Investors Forum (which will hopefully happen again next year!). There we’ll do the meetings face to face, but much else we’ll do electronically — with the clear qualification that for a transformational advisory pitch, an electronic format is surely second best to a meeting with the key people around one table.

One final point is on data, and this is sometimes overlooked. I don’t know the magnitude of it, but we need to be aware that if we push a lot more data through the system, this will require a lot more energy, which needs to be produced as well. The ESG footprint of 5G, for example, is a lot worse than that of 4G because of the added energy that is used. So, it is a bit more complicated than just saying, ‘Oh, this is much better because we’re not travelling.’ But on balance, it probably will be.

GlobalCapital: We’ve talked about behavioural changes in how we go about our roles, but, Michael, is it too early to tell how investors will change their views on the world?

Metcalfe, State Street: There has been a lot of academic research on investors who lived through the Great Depression. What you tend to find is that it affects their risk tolerance throughout their lifetimes.

Economically, there is no doubt that we’re going through the biggest downturn (hopefully) that we’ll have in our lifetimes. So it’s hard to imagine it won’t have some impact. But the fact that this is not yet really a financial crisis — it’s an economic and human one — and the fact that financial markets so far have shown some resilience might mean that those effects are reduced. 

When we look at all the metrics, the one we’re most focused on right now is cash holdings. Looking at a straight comparison with the last crisis, broadly speaking in 2008 cash holdings went from just under 20% to 28% of investor portfolios over that crisis. This time, even though the economic collapse is bigger, it has gone from 20% to 24%. 

The way we characterise it is that we have seen a partial capitulation. But then as the policy response has ramped up, it has stabilised. It has been stable now for about six weeks. This is interesting, given that we know the second quarter is going to be the worst quarter for earnings, GDP growth and any kind of economic data — and the worst by some margin. So, we are halfway through that quarter now and cash holdings are flat — I think I might settle for that. 

So, yes, investors are a bit on the sidelines, but they haven’t panicked yet. And, yes, their risk appetite might be partially constrained, as it typically is after these events — it takes a while, once you pull back from your international holdings, and you don’t immediately go back out again. That process will be quite slow. But I think my one-liner would be that it could have been an awful lot worse.

Wilson, Abundance: Our customers come to the platform because they care very much about climate and how we address that, but also, more broadly, because of some of the social challenges that face us. So, in some ways, we talk to a particular audience. But we also do some, broader insight work. We did a 2,000-representative adults survey earlier this year that asked how people are feeling about things and what they want. A very clear takeaway we have (whether it’s from our customers, or the general public at large) is this desire for action now on environment and climate — not words, but action — and that they are prepared to back that up with their own cash. 

There is £500bn-£600bn invested in ISAs and most of that is in cash. And you can probably multiply that by four to get the size of the overall pool of savings and investments from the UK general public — so it’s a big number. 

We’re here to help people mobilise some of that capital towards the future they’d like to see. It might sound like an easy statement, but actually it’s a really serious thing. And we need to do more of that. We want to make it easier for people to do that. 

People are telling us that, notwithstanding the pandemic, that resolve has not been dampened. We are about to launch a couple of investments on the platform over the next few weeks. So that will be the first opportunity we get to really test how much that stated desire translates into investment. 

Certainly we would not expect to see fewer people, but they might be investing a bit less than we would normally expect, just because we have still got a huge amount of uncertainty and people will naturally be inclined to sit on more cash than they might do otherwise.

Kohli, LSEG: Three trends stand out. First, the more time we spend looking at ESG, the more we find evidence of outperformance by companies that are better aligned to ESG principles. And that really changes the discourse we were having four or five years ago, which was: ‘is ESG a good-to-have or does it compromise financial performance?’

Now, that may be driven partly by macro trends around commodities, but there is a strong shift now in the majority of new business conversations we’re having — not just with companies looking to raise capital, but also with investors looking to track indices. ESG is a major component. 

Second, Michael made a very interesting comment on cash. There has been a focus on the role share buy-backs have played in accelerating balance sheet crises at companies. So I think there’s going be a focus on stewardship again in markets in the future, which is incredibly important. It’s something we will look forward to engaging with regulators on in due course. It’s high up on our agenda.

Third, retail. In mid-May Compass Group completed a £2bn recapitalisation offer, which marked the first time a FTSE 100 company had included a retail component in its accelerated bookbuild. The retail component was supported by PrimaryBid, a platform which connects retail investors to companies that are fundraising. 

Meanwhile, the Italian sovereign has issued a €22bn bond — BTP Italia 2020 — driven by a large section of retail involvement. 

Louise mentioned the UK ISAs: these are also crystallising investment shifts into ESG — another example of the power of the retail investor. Each of these trends will gain importance in the future. 

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