Kay McCarthy, Head of Jersey Office at The International Stock Exchange (TISE), discusses an unforgettable year in financial markets and how TISE has been impacted.

We are living in unusual times. Just two years after the beginning of the Covid-19 pandemic, we have experienced one of the most difficult years for markets in decades. Global geopolitical uncertainties, the war in Ukraine, fears about high inflation, and the rising oil and commodity prices have all impacted global markets since the beginning of 2022.

Most major asset classes have fallen with stock and bond markets having been hit particularly hard. A rare year when stocks and bonds sold off in tandem. Bond prices typically move in the opposite direction to stocks and as such, have traditionally provided stability against equity market volatility. That has not been the case this year, a direct side effect of central banks around the globe responding to elevated inflation by hiking interest rates, with bond yields increasing alongside them.

Asset classes

It was not just stocks and bonds that fell; real estate, gold and the crypto market have all been impacted. Asset classes which would in normal times be uncorrelated have all fallen due to related economic trends.

The real estate market struggled due to rising interest rates and a challenging economic climate. Gold has been disappointing as a safe-haven, with both rising rates and a strong dollar having a significant negative effect on performance, despite support from geopolitics and inflation. And, as the year progressed, the crypto market largely stalled after all-time highs in 2021.

There has been some performance. Commodities, such as oil and gas, have seen hefty price increases due to supply-side constraints and the rising flow of capital to accelerate the clean energy transition is continuing.

As we approach the end of the fourth quarter, the concerns that have been weighing on the market for the past three months are still present, namely the impact of the war in Ukraine on inflation, the tightening of monetary policies by the major central banks, and the energy situation.

Capital markets and M&A   

Looking at the capital markets, European high yield and wider fixed income credit markets have been largely dormant with global bond issuance contracting significantly during 2022 across all asset classes. However, at TISE, where 90% of our listing activity is in the bond market, we have continued to see significant listing activity across private equity related transactions, securitisations, and programmes.

We have also seen new class listings of refinancing deals and, given the backdrop of recent years, we have seen several maturities extended.

Whilst the corporate debt market stalled, private equity related debt listings have been strong this year, a trend we expect to continue. According to Bloomberg, firms are holding record cash which is available for new deals, and the M&A market may reveal a return to pre-2021 Levels. M&A activity in 2021 reached historic levels so 2023 could represent a return to ‘normal’ in the M&A market. Latest data from Refinitiv reports worldwide M&A activity totalled US$2.2 trillion in the first half, down 21% on the same period last year but still on track to be the second strongest year on record.

The year ahead is set to be another volatile one for the global economy as the issues from 2022 continue to take their toll on activity. Much will come down to the course of inflation. But interest rates are expected to stabilise in 2023 and central banks will shift their attention to supporting the economy, and with that, the supply and demand for new bond issuance is expected to improve.

In fact, much of the bad news is already beginning to look as though it is discounted in the markets and incorporated into growth forecasts, which will mean that the potential for further downside may be reduced, and as soon as central banks stop raising rates momentum will return.

TISE in 2022/3

Despite this year’s difficult macro-economic environment, TISE has continued to perform well, with 290 securities admitted to the Official List between the start of July and the end of October this year. This took the total number of listed securities on TISE’s Official List to 3,937 at 31 October 2022.

Whilst wider market uncertainty has dampened listing volumes, especially in products with greatest exposure to the broader debt capital markets, listing volumes are only marginally lower than a record 2021. The resilience of M&A activity and the attractiveness of TISE’s core bond market proposition have supported a strong flow of bond listings on TISE.

Among those listings, we’ve continued to see admissions to our sustainable finance segment, TISE Sustainable, which has been recently expanded to include a transition offering that supports the transition to a lower carbon future. Catering for transition bonds and transition issuers, we expect it will be particularly attractive to those companies operating in more emissions-intensive industries who are seeking to demonstrate their role in the transition to net zero.  

Looking to 2023, in addition to our existing core exchange business, we are taking steps to further diversify as we explore the opportunity to launch an offering within the private markets. This is an exciting proposition which we be hoping to bring to market early next year.

This article was originally published in the Jersey Evening Post, 7 December 2022