Fact Book 2020. Summary of the year.
2020 will go down in history as the year of the global pandemic caused by the coronavirus Covid-19. Its unpredictable and devastating health and economic consequences have been of an unprecedented intensity and have affected all areas and corners of the planet. Its implications and scars will remain for a long time, although many of its most harmful effects can be overcome.
The fight against the virus in all countries has fully or partially confined or paralysed activities that represent about 70% of the world economy for weeks on end, which has led to a historical and global contraction of GDP that the IMF estimates to be 4.4% in 2020, the largest since records began. Families and companies around the world have suffered severe adjustments to their income, turnover and profits because of the consequent impact on consumption and investment, and therefore on the world’s production of goods and services. In Europe, and particularly in Spain, the pandemic has a significantly virulent impact. The Eurozone economy will contract by 8.3% in 2020 and the Spanish economy even more so, by 12.8%, according to the IMF’s October forecasts.
To try to mitigate the effects and combat the economic shock, the main central banks and governments of the world have implemented monetary and fiscal aid programmes of an unprecedented intensity and size.
The North American Federal Reserve, which had already started its expansionary policy in 2019 with three cuts in intervention rates, responded in March 2020 to the spread of the pandemic and the growing uncertainty about the economy with an unscheduled cut in intervention interest rates of 0.5 points on 3 March, to a between 1% and 1.25%. With the spread of the pandemic already out of control, on Sunday 15 March, it again applied an unscheduled cut of 1 percentage point to a minimum range of 0-0.25%. Additionally, between March and April, it launched up to 11 emergency programmes with a capacity of up to $2.6 trillion, among them being the unlimited purchase programme of Treasury debt and mortgage securities and two programmes for the acquisition of corporate debt.
The ECB, however, announced an initial package of measures on 12 March to reinforce liquidity and for larger purchases of assets to face the health and economic crisis. Conditions were improved so that banks could request almost unlimited liquidity from the TLTRO-III programme at a lower cost and by relaxing conditions; the current sovereign and corporate bond purchase programme was substantially increased with another €120 billion. Given the seriousness of the health and economic crisis looming over the European economies, the Pandemic Emergency Purchase Programme (PEPP) was launched on 18 March with €750 billion to „restore the orderly functioning of the financial markets of the Eurozone and ensure that European Monetary Policy continues to reach all corners of the Eurozone.” At the meeting on 4 June, the volume of the PEPP was increased by €600 billion, to a total size of €1.3 trillion, and extended until June 2021. At the meeting on 30 April, the conditions of the TLTRO liquidity auctions to banks in the medium term conditional on credit were greatly improved. In addition, 7 emergency liquidity auctions (Pandemic Emergency Longer-Term Refinancing Operations or PELTROs) were announced linked to the pandemic, but not to credit, with an estimated volume of €3 trillion, to preserve the functioning of the money market. A temporary reduction of capital requirements for banks was also implemented and the cancellation of bank dividend payments was ‚recommended’ until the end of the year. Now in December, and given the severity of the second wave of the pandemic, the ECB extended the Emergency Programme (PEPP) until March 2022 and is now endowed with an additional €500 billion to total €1.8 trillion. The extraordinary liquidity conditions for banks have been extended until June 2022.
Among the fiscal policy programmes launched by governments around the world, those implemented or announced by the European Commission are of most significance, as these aim to mobilise up to a total of €3.3 trillion, which would be equivalent to 22.1% of the European economy. These programmes include the European Recovery Fund, called Next Generation EU, through which €750 billion will be mobilised, financed through the issuance of community debt. The funds will be distributed in the form of transfers and loans to the countries most affected by the pandemic between 2021 and 2024. The Plan aims to mitigate the damaging effects of the pandemic and strengthen the long-term strategic growth of the region. Spain expects to receive €140 billion from the recovery fund, of which approximately half will be direct aid and the rest in the form of loans under very favourable conditions. In addition to these supranational measures, the Spanish Government has mobilised close to €200 billion to guarantee liquidity to the business fabric and ensure a minimum income for households. In the US in March a 2.2 trillion QE programme was approved, a supplementary 0.9 trillion dollars in December and in January 2021 an additional 1.9 trillion dollar government plan is expected to be approved by the new President.
The immediate consequence of the health and financial crisis will be a large increase in global debt, which reaches record levels in both developed and emerging economies. In the former, debt is expected to climb to 126% of GDP between 2019 and 2022, while in emerging economies, this figure rises to 100%. The public deficit on a global scale will reach an amount equivalent to 12.7% of global GDP in 2020 and 14.4% for the group of developed economies.
In Spain, the markets and systems managed by BME remained open and have continued to operate normally during 2020, and particularly during the State of Alarm decreed in Spain during the second quarter as a consequence of the Covid-19 health crisis. Both the trading platforms and the Central Counterparty, BME Clearing, as well as the Central Securities Depository, Iberclear, operated satisfactorily in their key role in managing the financial system risk and maintaining the financing and liquidity channels.
International Indices and Stock Markets
In 2020, the world stock indices accumulated increases of between 11% and 14%, a performance marked by volatility with a generalised and sharp fall in March and the subsequent recovery supported mainly by the good performance of the US, Japanese and Asian emerging market stocks, with China leading the way. The explanation for the positive balance of the aggregate indicators of world stock markets rests on factors such as the unprecedented expansionary monetary policies of central banks, China’s success in the fight against the virus, and the growing weight of sectors and companies, for the most part American, which have been reinforced during the pandemic, such as the health sector or the new information technologies applied to multiple areas of the economy. In an extraordinary month of November for the world Stock Exchanges, very encouraging results were confirmed from the final tests of the vaccines against Covid-19 under development.
However, in general the European stock markets have accumulated losses over the year but with vast disparities: The Euro STOXX 50 of the main stocks fell 5.1%. This trend is improved by the indices of the Netherlands (+3.3%), Portugal (+12.9%), Switzerland (+0.8%) and Germany (+3.6%). Slightly worse than the pan-European index are Italy (-5.4%) and France (-7.1%) and the Spanish IBEX 35® already with higher losses (-15.5%), United Kingdom (-14.3%) and Greece (-11.8%). The poor performance of the European banking sector (the STOXX® Europe 600 Banks fell -22.9%), and particularly the Spanish, with its considerable weight on the stock market, once again undermined the performance of IBEX 35®.
The US markets have undergone a spectacular recovery after the collapse in March and accumulated gains in the year 2020, supported by FED measures, government stimuli and the weight of large technology companies. Its main indices reached all-time highs and returns above world averages. The Dow Jones is up 7.3%, the S&P 500 +17.3% and the high-tech Nasdaq 100 Index an impressive 47.6%, a run of eleven consecutive years of annual gains. Emerging markets rise +16.6% in the year, according to the MSCI EM global index, with Latin America (-0.3%) falling far below this figure.
Investment in Spanish shares: capitalisation, trading, liquidity and dividend yield
The share prices of the large securities listed on the Spanish Stock Exchange have generally suffered significant losses with the IBEX 35® down 15.45% in 2020 and the IBEX with Dividends mitigating the decline to 12.7%. The significant weight of the banking financial sector and tourism related sectors penalise the comparison with other international references. The IBEX Banks sector lost 27.35% until the end of November, but energy fell only 4.2% while the Leisure, Tourism and Hospitality subsector index fell more than 30%.
The indices of the small companies are those that have performed best: The IBEX Small Cap, made up of 30 companies, gained 18.9% and the two indices of the BME Growth platform for growth companies showed greater gains: The IBEX Growth All Share rose 39.6% and the IBEX Growth 15 was up 54.1% in 2020. The differences in the sectoral structure of the companies that make up these indicators provide an explanation to the disparate performance and have helped the smaller stock indices to successfully overcome the crisis.
Historically, the dividends of the large Spanish listed companies are of great importance. For years the Spanish market has consistently been a leader among the developed Stock Exchanges in terms of dividend yield, one of the market’s attractions for foreign investors, who own just over 50% of the value of listed Spanish shares, 16% more than 13 years ago.
In 2020, the Covid-19 crisis has had a very decisive impact on the main figures: In 2020, total shareholder remuneration rose to €18.7 billion, 41% less than the previous year. Much of the responsibility for these decreases is within the banking sector, which, following the recommendation of the ECB, decided not to distribute dividends as of the second quarter of the year so as to strengthen its capital ratios.
Of particular note during the year was the increase in dividends paid in the form of shares (scrip dividends). In 2020, payments of this type amounting to €6.6 billion had been executed, 69.5% more than in 2019.
The capitalisation or joint market value of the companies listed on the Spanish Stock Exchange stood at €948.2 million at the end of 2020, 14.2% less than at the end of 2019, highlighting the impact of the crisis on the value of the main listed companies, particularly the banks. However, from the lows until the end of 2020, the total market capitalisation has recovered more than €218 billion. The total number of listed companies the last day of 2020 was 2,738: 157 listed on the main market and 2,851 on the BME Growth MTF and the SICAV segment.
Trading in equities has performed better than listed shares, where activity on the Spanish Stock Market has remained stable compared to the previous year. The accumulated trading volume in 2020 totalled €429.7 billion, showing a decrease of 8.6% compared to the volume traded in 2019 and a 49.6% increase in the number of trades to 55.7 million. The effect of the 45% decrease in the trading of the block segment has been of great significance in the decline in the traded cash volume, while all other trades increased by almost 9%. One of the reasons for this behaviour is the increased activity in the market by retail investors, due to the sharp fluctuations in the prices of listed shares. This trend of a greater presence of retail investor transactions has also been detected by the European securities markets regulator, ESMA. There has been an increase both in the transactions undertaken by investors who were already operating on the stock markets and the incorporation of new private investors who have opened accounts to operate on the stock exchange through specialised brokers.
In terms of liquidity, the Spanish Stock Market continues to be the benchmark for execution and liquidity in trading Spanish securities, accounting for more than 73% of the cash volume traded in these securities worldwide, and the instrument through which issuers complete their corporate operations and resolve their financing needs. It also has the best execution metrics compared to alternative trading platforms for Spanish securities in terms of buy-sell spreads, order book depth and the best execution price available, according to data from the independent entity Liquidmetrix.
Capital investment: investors, share capital increases, secondary offerings and IPOs.
The investor base of the Spanish Stock Market remained extensive and diversified, with foreign investors making up the most important group with a record high 50.2% stake in the overall capital of the listed companies, according to the data at the close of 2019. The Spanish Stock Market has traditionally occupied a relevant position in the international arena in terms of financing companies in the form of capital.
During the 2020 financial year, the turbulence in trading prices and high volatility have not been conducive to new IPOs, but the market has been very effective in channelling capital increases to strengthen the financial structures of listed companies weakened by the reduced activity. This therefore reveals the differential advantage of the companies present on the Stock market in terms of financing alternatives.
In 2020, the financing flows channelled in the form of capital increases increased by 17.6%, reaching €18 billion. On the contrary, new investment flows in the form of new admissions decreased by 75% compared to the previous year.
The figures for the IPO market in Europe in 2020 continue the four-year decline for these operations. According to PwC’s annual „IPO watch Europe” report, IPOs fell by 14% in number and 30% in volume in the year to September, compared to the same period of 2019.
In Spain, in 2020, 11 companies have been admitted to all the markets, jointly contributing €905.4 million on the day of their admission. Ten of these companies have been admitted to trading on BME Growth. 6 of them are REITs, which continues to be the most dynamic sector in incorporating companies into the market. The IPO in the main market was by the renewable energy company SOLTEC, raising €150 million in October and debuted with a capitalisation close to €400 million. In terms of value contribution of the Stock Market to business growth, the addition of Cuatroochenta to BME Growth from the Pre-Market Environment (PME) stands out, the first company to complete this journey through the consolidation chain in the markets proposed by BME.
The companies listed on the main market of the Spanish Stock Exchange have carried out 42 capital increase operations from which €15.2 billion have been obtained.
BME Growth: investment and financing
The MAB market created by BME in 2006 as a Multilateral Trading Facility (MTF) aimed at small and medium-sized growth companies was renamed BME Growth on 3 September 2020 after recognition of the European Growth Market category by the CNMV and is known as the SME Growth Market in Spain.
This new category is developed within the framework of the Capital Markets Union (CMU) included in MiFID II with the aim of promoting the financing of smaller companies through their presence in financial markets and standardising quality and transparency among the growth markets in Europe. Regulation is also simplified to adapt it to this type of company.
The capitalisation of BME Growth corresponding to the 119 companies admitted to trading grew by almost 3% in the year to reach €16 billion. 10 new companies have been admitted, six of them REITs.
Despite the falls in the European stock markets, many of these companies, established in growth and competitive sectors, such as technology (software and electronics), pharmaceuticals, biotechnology and engineering, have registered increases in their valuations. The IBEX GROWTH MARKET® All Share and IBEX GROWTH MARKET® 15 indices accumulated gains of 39.7% and 54.1%, respectively, r.
The companies included in BME Growth have also continued to finance themselves through the market to meet their growth and financing needs. In 2020 2020 they have carried out 71 capital increase operations, raising €428 million.
Of particular note is the growing role played by the BME Pre-Market Environment (PME) in bringing companies and investors into the financing and investment ecosystem represented by the securities markets. The recent inclusion of Cuatroochenta to BME Growth has highlighted this role. At the end of November, 14 companies with a high technological component but from very different sectors were taking part in advisory programmes and adjusting their businesses to the markets. They have also continued to add partners to this ecosystem made up of companies, investors, entrepreneurs, advisors and professionals of the financial markets to bring the total to 15.
Corporate operations: Takeover bids
As a result of the global pandemic and the generalised uncertainty, the Spanish market for the control of companies and M&A has slowed down during a good part of 2020 but the outlook for the coming months and years is one of strong activity due to the consequences of the crisis and factors such as the low level of interest rates, the sharp drop in some share prices, the high amount of liquidity present in the market and the sustained investment appetite of venture capital and institutional investment.
The two large takeover bids of the year have had international buyers. The largest was that by the Swiss SIX Group for BME for €2.8 billion with the aim of forming a widely diversified markets and financial systems operator, with the ability to compete in Europe and the world. The other takeover bid was made for Másmóvil by the investment vehicle of the Cinven international venture capital groups: KKR and Providence. Másmóvil has participated in one of the most vertiginous growth stories of the Spanish Stock Market. It went public three years ago via BME Growth (formerly the MAB), and in five years it has multiplied its value by 6.
Among the merger and acquisition operations in 2020, it is worth mentioning the merger announcement between two Spanish banks, Caixabank and Bankia, which will result in a banking leader for deposits in the national market. The operation will close in 2021. Also two medium-sized banks, Liberbank and Unicaja, confirmed their merger agreement in the final part of the year.
Fixed Income: financing and investment
The role of the Fixed Income markets has been essential in 2020 to ensure that companies and States have been able to finance themselves to face the serious consequences of the health and economic crisis caused by Covid-19. The action taken by central banks has been swift and forceful in support of these markets. As a result, the issuance of public and private debt in the world has broken records for the year so far.
In Europe, with the worsening of the health crisis, the Spanish and Italian risk premiums increased in March both due to the rise in the yields of their bonds and the reduction in the rates of the German 10-year Bond, once again becoming a safe-haven asset. The German Bund started the year with a negative yield of -0.23% and increased to a minimum of -0.87% in March to then begin moderate recovery to -0.58% at the end of the year. The 10-year Spanish bond began the year at 0.44%, rising to a maximum of 1.19% on 18 March, to start a downward trend that finally led it into negative territory (-0.01%) on 15 December for the first time in history, closing the year 2020 at 0.04% as a reflection of the impact of the strong measures of the ECB. The risk premium of Spanish bonds, which during the worst moments of the health and economic crisis peaked at to 150 basis points (1.5%), returned to lows close to 60 basis points (0.6%) at the end of the year.
The volume of Spanish public debt issued and admitted to trading on the fixed income regulated market in 2020 reached €275 billion, representing an increase of 36% year-on-year.
In 2020, accumulated trading in Public Debt on the BME platforms reached €279.2 billion, 16.3% down on the volume the previous year. The total outstanding balance of Spanish Public Debt in the BME Fixed Income regulated market stood at €1.17 trillion at the end of 2020 an 8.8% increase year-on-year. The balance of foreign Public Debt on the same date fell by 4.5% to €4.7 trillion euros.
Corporate debt has undergone a year marked by extreme volatility during the initial moments of the health crisis with never before seen fluctuations in these markets. In the case of BBB rated European Fixed Income, according to the Iboxx Index of BBB rated Eurozone Bond Prices, prices plummeted by almost 10% in just three weeks to mid-March, to subsequently initiate an upward rebound that took them even above their starting levels in the months of November and December thanks to the support of the ECB. The volume of Spanish private debt issued and admitted to trading on the BME regulated market in 2020 reached €119.2 billion, an sincrease of 4.5% compared to the previous year. During the year, there was a noteworthy growth in promissory notes, which grew 48% to €22.3 billion. At the end of December, the total outstanding balance of Spanish issues registered in BME Fixed Income grew by 0.2% to €464.6 billion.
In 2020 the number of non-financial companies that issued fixed income securities reached a record-high, with 91 issuers.
Fixed Income: MARF
In a year as complex as 2020, the Alternative Fixed Income Market (MARF) has seen its position as a key tool for business financing of Spanish companies endorsed and has also served as an instrument for support policies for companies launched by the Spanish government. Created in 2013, in 2020 90 companies had already turned to MARF for financing, six of them from Portugal.
After a halt in the months of March and April, as a result of the health crisis caused by the Covid-19 , the issuance rate recovered as the second quarter progressed thanks mainly to the extension to the promissory note issues made in this market by the public guarantees programme channelled by the Instituto de Crédito Oficial (ICO) for a value of €4 billion. ICO coverage reaches up to 70% of the total volume of the issue. Altogether, the modifications of 13 promissory note programmes have been processed to incorporate this possibility of issuing guaranteed promissory notes and, under this, issues have been carried out satisfactorily for issuers, with close to €2.5 billion guaranteed. ICO has also launched the direct subscription of shares in promissory notes issued in this market to support the liquidity of companies. In October, the decision of the European Central Bank to consider the MARF as a multilateral trading facility eligible for monetary policy was made public.
The total volume of issues in 2020 reached €9.6 billion, a moderate drop of 7% compared to the previous year. The total outstanding balance at the end of December stood at €5.3 billion, with an increaseof 3.82% year-on-year.
Financial and non-financial derivatives: futures and options
The Spanish derivatives market, the MEFF, is expanding and diversifying with the inclusion of new products such as foreign exchange derivatives or the growth of electricity products. In a context marked by the sharp increase in volatility in the stock market, the range of Equity derivatives reduced their traded volume by 10% in 2020 to 40.5 billion contracts, mainly as a consequence of the ban on short selling in Spain for two months, although the total number of transactions shot up 26%.
Implied volatility in 2020 increased to a daily average of 25.6% compared to 13.7% for the whole of 2019 according to the VIBEX® volatility index, which allows daily monitoring of the volatility of the Spanish stock market using more liquid options on the IBEX that are traded on the MEFF derivatives market.
The products that grew the most in the year, by almost 11%, were options on individual stocks, a phenomenon that has also occurred in the main international markets, largely linked to greater trading activity by retail investors and traders. Whereas IBEX 35® Futures, the flagship product of the Spanish derivatives market, fell slightly by 1% but the number of trades linked to them grew 26%.
2020 will be the first fully operational year of the xRolling FX® futures contract market ® after their launch in 2019. They are „perpetual” contracts, renewing automatically at the end of the day and in 17 of the main world currency pairs. Taken as a whole the trading of contracts on xRolling FX® has increased progressively during the year and, for example, in the third quarter of 2020 it multiplied by 100 compared to the same quarter of the previous year.
Financing Sustainability
Funding aimed at promoting sustainability and the fight against climate change continues to grow worldwide. Green, social and sustainable bond issuance will be well over $500 billion in 2020 according to forecasts by Swedish bank SEB, up from $321 billion the previous year.
Throughout 2020, the Covid-19 crisis has slowed the issuance of so-called green bonds, but social bonds have grown, which have broader purposes mainly linked to avoiding social exclusion.
In the case of Spain, these trends are echoed. Financing through green, social and sustainable bonds issued by companies and institutions in 2020 reached €15 billion, with an increase of 54% from the previous year, according to data collected by the Spanish Observatory of Sustainable Financing (OFISO). BME’s markets throughout 2020 saw issuances such as the Comunidad de Madrid health social bond, the Basque Country social bonds, the ICO social bond to mitigate the economic impact of the virus, and the issuances of social bonds by BBVA and CaixaBank totalling €1 billion, among others.
