21 October 2021

AFME report tracks European capital markets performance in 2021

Record levels of capital markets funding supported EU businesses in the first half of 2021, reflecting significant recapitalisation needs in response to the pandemic and favourable conditions for raising capital;

• Capital markets funding to European SMEs grew at a record rate, with the increase predominantly driven by venture capital and private equity growth funds;
• In spite of these record growth rates, absolute levels of market-based financing remain below those of other major jurisdictions. Additionally,  securitisation issuance levels continued to decline;
• The increases observed may be influenced by the extraordinary conditions of the past year, public support programmes and other factors;
• ESG issuance in Europe continues to expand in Europe, up 69% compared to 2020;
• Inefficient withholding tax collection procedures continue to be a barrier to cross-border integration in EU securities markets.

European capital markets have experienced another eventful year marked by the recovery from the economic stresscaused by the Covid-19 pandemic and the end of the Brexit transition period, among other developments. While lastyear’s edition of the industry’s Capital Markets Union (CMU) KPIs report showed there has been significant progress onthe development of the CMU since the launch of the project in 2015, I am pleased to observe that the positive trajectoryhas continued this year.

Due to the impact of COVID-19, there has been a greater need for corporates to raise funds through capital markets. On this front our latest report points to positive developments, as capital markets have further increasedthe provision of funding to corporates. However, there is no room forcomplacency: a structural and pandemic-induced “equity gap” remains and equity-type finance still needs to be expanded in Europe. It also remains to be seen to what extent these record market-based financing levels can be sustained in more normal economic and market conditions, or whether theyare a temporary result of the extraordinary support measures of the past year.

There is also significant progress concerning sustainability. EU ESG debt markets have shown rapid growth in the first half of 2021, with ESG issuance and investment no longer representing a niche sector but constituting a sizeable segment of overall debt markets. Similarly, Fintech companies have seen a substantial surge in investment in the first half of 2021. Most European countries have improved their local FinTech ecosystems overthe last two years, which could prove instrumental in European job creation and growth.

However, while the overall results are positive, there are still long-standing issues hindering the potential of Europe’s capital markets. For instance, securitisation markets have declined with issuance reaching lower volumes than the levels shown before the introduction of the Simple, Transparent, and Standardised (STS) regime in 2018. A well-functioning securitisation market is fundamental to the capacity of the European financial system to facilitate risk transfer and provide further funding options for financial institutions.

Meanwhile, the varying approaches to withholding tax across the EU and the lack of a relief-at source mechanism in some Member States continues to have a significant negative impact on cross-border investment, cost of capital and GDP.

With the findings of this fourth edition of the industry’s CMU KPIs report, we hope it helps identify through evidence-based measures where Europe has been doing well and where it can improve.

We would like to thank the 10 other trade associations and international organisations representing various global and European capital markets stakeholders for their support in co-authoring this report.

These organisations include the Climate Bond Initiative (CBI), and nine European trade associations representing stock exchanges (FESE), fund and asset management (EFAMA), retail and institutional investors (European Investors), pension funds (PensionsEurope), venture capital and private equity (Invest Europe), private credit and direct lending (ACC), business angels (BAE, EBAN), and crowdfunding (ECN).

AFME

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