World Federation of Exchanges data shows geo-political and economic tensions have hampered expectations of a quicker economic recovery.
New data published by the World Federation of Exchanges (WFE), the global industry group for exchanges and central clearing counterparties, shows that the various geo-political and economic tensions markets experienced during the first half of 2023 have hampered expectations of a quicker economic recovery.
Compounded with the effects of the war in Ukraine, we saw more financial institutions running into difficulty with the failure of some banks in Europe and in the U.S. Additionally, persistent inflation forced central banks to continue tightening their monetary policy, and consequent interest rate rises have put pressure on share prices.
Our data for the first half of 2023 reflects how these tensions have affected markets. Most significantly, we see a decrease in the global number of IPOs and in investment flows when comparing to the same period in 2022, which suggests firms and investors remain cautious. Only a few markets, notably the US, offered a positive trend for these indicators. Similarly, trading activity in cash equities decreased across regions, reflecting less interest in participating in the markets. Conversely, we observe an increase in volumes of exchange-traded derivatives, especially in interest rate and commodity contracts, which is consistent with the need for managing the risks and uncertainty derived from interest rate hikes, the geo-political landscape, and fear of inflation.
For the second half of the year, a decline of inflationary pressures and a slowdown in monetary policy tightening may contribute to moderate the above trends; however, global growth is still projected by the IMF to fall from an estimated 3.5 percent in 2022 to 3.0 percent in both 2023 and 2024. If these projections are correct, we anticipate that it will probably not be until the end of 2024 until we will see a reversion in these trends.
Dr Pedro Gurrola-Perez, Head of Research at the WFE, said: “Our new data indicates a slower economic recovery than was expected as geo-political and economic tensions have taken their toll. The decrease in the number of IPOs and in investment flows, in particular, suggests the persistence of the uncertainty that firms and investors faced in the previous year.”
Nandini Sukumar, Chief Executive Officer at the WFE, said: “The first half of the year has been tough for markets and IMF expectations for global growth project a slow recovery. As we enter the second half of the year eyes will be on the direction of inflation. A decline in inflationary pressures coupled with a decrease in monetary policy tightening would lessen the trends we saw in the first half as we would anticipate more confidence in markets.”
Some highlights from the report:
Cash equity
• Global equity market capitalisation increased 7.5% in H1 2023 compared to the end of H2 2022, driven by increases in the Americas and EMEA regions, while APAC experienced almost no change. In absolute terms, this represents a growth of more than USD 7.8 trillion in the global markets.
• With respect to H1 2022, the value of shares traded and traded volumes (i.e., number of trades) globally decreased 20.9% and 13.9%, respectively; with decreases observed across all regions.
• The number of IPOs and the capital raised through IPOs fell significantly compared to H2 2022 (-28.9% and -24.1%, respectively).
Exchange-traded derivatives
• In H1 2023, the number of exchange-traded derivatives contracts continued their double-digit growth since H2 2019, amounting to 56.02 billion. This result was driven by options contracts, which increased 38.2% when compared to H2 2022, while futures contracts declined 8.1%. Options represent 75% of contracts traded, with futures accounting for the rest of 25%.
• Currency derivatives were the only derivative product whose overall volumes (that is, considering both futures and options) declined in H1 2023 (-14.3%), while equity and interest rates derivatives volumes recorded double digit increases (31.3% and 23.8%, respectively).
• Commodity and ETF derivatives volumes increased 7.6% and 6.1%, respectively.
• Stock index options are by far the most traded derivatives contracts (55% share). 96% of the global volumes of stock index options are traded on National Stock Exchange of India, which in H1 2023 reached a peak of 29.6 billion contracts.
Other Products
• The number of listed exchange-traded funds (ETFs) increased slightly (1.1%) when compared to H2 2022, while the ETF value traded declined (-7.4%), due to declines in the Americas region. While ETFs are fairly equally listed among regions, they are traded mostly in the Americas (79% share).
• The number of listed securitised derivatives (SD) rose (1.2%), mainly driven by the APAC and EMEA regions, while the value traded fell (-6.9%), due to declines in the Americas and APAC regions. Most of the securitised derivatives are listed in EMEA region (99% share), but most of the value traded corresponds to the APAC region (78% share).
• The number of listed investment funds (IF) and the value traded fell (-4.3% and -2.4%, respectively). EMEA region recorded declines in both number of listed investment funds and value traded. Most of the investment funds are listed in the EMEA region (70% share) but are mostly traded in the APAC region (96%).
You can read the full report here.
