European capital markets have continued to operate well following the outbreak of COVID-19, according to research by the Association for Financial Markets in Europe (AFME).
The new research on the initial impact of COVID-19 on European Capital Markets observed that liquidity has ranged from very good to mixed, depending on the sector, with even record volumes of new issuance in certain sectors.
Further key takeaways from the research highlighted that issuance of investment grade corporate bonds surpassed €50 billion in the first week of April, the highest weekly amount ever issued in Europe.
French companies have been particularly active in this respect, which AFME said is “remarkable, given that many, if not most, financial market participants are working remotely”.
AFME explained that markets are more volatile than a few months ago, which has made it costly for some companies to list through initial public offerings (IPO), with IPO issuance on European exchanges seeing a decline of 83 percent compared to a year ago.
According to the association, markets have been playing their role in providing liquidity, price formation, and timely clearing and settlement procedures, contributing to capital allocation and helping investors manage their portfolios.
AFME noted: “Equity average daily trading has surged 94 percent year-on-year in March 2020, corporate bond trading increased 31 percent year-on-year in Q1 2020, and foreign exchange trading rose 61 percent year on year in March 2020.”
The rapid increase in securities trading and post-trade activity has been carried out without any major disruption from a business continuity perspective, according to the association.
Elsewhere, AFME affirmed that securitisation secondary markets have suffered disproportionate reductions in liquidity due to central bank support which is more limited in scope and slower and more difficult to access than for other fixed-income sectors.
“Banks operating in Europe are well-positioned from a solvency and liquidity perspective to support households and businesses during this period of abnormal economic pressure” AFME outlined.
On AFME’s approach to COVID-19, it was noted that the association is working together with its members and regulators to ensure that markets remain open, well-functioning and liquid in light of the market impact of the pandemic.
It added: “AFME will continue to assess the implications of COVID-19 for our members and to engage with authorities across Europe.”
