The year 2010 was marked by constant uncertainty associated with incipient but weak growth in developed economies and the impact on the digestion of large volumes of debt contracted by the private sector at the start of the crisis and by the public sector in its bid to overcome it. In this scenario, the return to financial stability, which seemed to be more or less under control, suffered significant setbacks. The central banks of the main economic areas were forced to deploy a full arsenal of conventional and non-conventional measures, unusual and sometimes controversial, to support both the banking industry as well as try to kickstart economic growth. In spite of these measures and the vast funds mobilized since the start of the crisis to prevent a collapse, the banking industry remained the source of tensions and has problems in fulfilling its role of channelling loans to the private sector, a factor that is vital for making the sector the engine of recovery in place of the drive from the public sector. This was also the situation in Spain where the stock market and public debt reflected with volatility and price declines the combination of anaemic growth, a high budget deficit and high external indebtedness, and doubts on the true situation of part of the banking system. Nevertheless, the figures, especially those for trading, were consistent and underscored the importance of the liquidity of regulated markets, especially during times of low confidence.
The performance of the world’s main indices was varied during 2010, raging from a 16% rise in the German market and 11% in the US to a 17% fall in Spain, 42% in Greece and 13% in Italy.
Spain’s Ibex-35, the main index, which in 2009 was Europe’s best performer, was hit in 2010 by country risk and the weakness of the European financial sector. The index fell 17.43% after fluctuating in a very wide range of 35% between its peak and low. The main reason for the index’s fall was financials and real estate companies’ performance. Its sectoral index fell almost 32%. The drop in share prices, however, did not erode the levels of activity. The equities’ trading volume in Spain once again exceeded €1 trillion, showing that, despite the tensions, the market model worked with solvency and liquidity continued to be one of the strong points of the Spanish market. Indeed, in 2010 there was a new record in cross trading in shares of more than €40.5 million.
Among the main regulated European markets the volume of shares traded via Spain’s electronic systems was the one that increased the most in 2010 (+15%). In a context of increasing fragmentation of trading centres, the Spanish market concentrated almost 99% of the trading of the shares of listed companies and over the last decade the trading volume of shares on the Spanish market has constantly risen as a percentage of the European total (from 7% in 2000 to 14% in 2010).
The levels of liquidity of listed Spanish shares (the spread between the best offer price and the best demand price) have also declined significantly over the last decade and remained systematically at very narrow and efficient levels even when market conditions intensify the volatility. The average range of the Ibex-35 moved during most of 2010 between 0.07% and 0.09%.
The market’s liquidity can also be appreciated for yet another year by the trading volumes of the main listed Spanish shares. The stocks of Santander, Telefónica and BBVA were among the euro zone’s five most liquid shares. According to the aggregated figures for 2010 of the EuroStoxx 50 index, the shares of these companies were in first, second and fourth positions, respectively, by trading volume.
The capitalisation of the Spanish market was 3.2% lower than in 2009 at €1,071,633 million. The loss of value of the financial and real estate sectors accounted for around 55% of the fall. The number of companies in all segments was 3,355, lower than in 2009 because of the disappearance of some SICAVs listed on the Alternative Stock Market (MAB).
The earnings of companies confirmed the turning point reached in the third and fourth quarters of 2010 and largely thanks to the geographic diversification of revenue sources of the main listed companies. During 2010 there was a gradual return to profits. The profits of all the listed companies increased 12.7% year-on-year in the first nine months of 2010 to €37,293 million.
Despite the difficult circumstances during 2010, the vocation of commitment to the investor was again made clear in the efforts made by companies to maintain the shareholder remuneration. In 2010, companies distributed a total of €24,593 million of gross dividends for various items, mainly dividends. Particularly noteworthy because of its relative novelty was the increasing importance of payment in kind, either in shares from treasury stock or issuing new shares via capital increases.
The favourable expectations opened up at the end of 2009 were not met with the expected brilliance because of the greater degree of uncertainty in the financial system and weak activity in developed economies. However, the scenario of greater difficulties in obtaining bank loans and the feeling that the volume of debts must be reduced will tend to increase the proportion of financing that comes from capital and thus of the stock markets.
In Spain, listings began to pick up during 2010 and by December 1 10 new companies has joined the various segments of the stock market via IPOs and subscriptions.
The largest placements were those of Amadeus and Enel Green Power, which joined the main market, while the other eight were incorporated to the MAB’s companies in expansion. It is in this market where companies best begin to give consideration to the stock market as an instrument of powerful financing.
The capital increases of listed companies amounted to €14,293 million, 26% more than in 2009. The funds captured through the issue of new shares with disbursement in cash were around €11,600 million, the largest volume in the last 10 years.
The year’s largest operations were those by Telefónica, BBVA and Santander. Telefónica, a telecoms leader, carried out one of the world’s largest operations when it acquired full control of Vivo, the Brazilian mobile telephone company, while BBVA and Santander, big international banks, conducted significant operations in Turkey and Poland.
The Alternative Stock Market (MAB) for companies in expansion, fostered by Bolsas y Mercados Españoles (BME) and designed to facilitate the access of SMEs to stock markets, was two years old in 2010. The 10 new companies that joined in 2010 underscored the attractiveness of the MAB as an alternative for smaller companies so that they can attain not only financing but also liquidity for their shareholders, a constant valuation and public recognition.
Meanwhile, various public administrations have understood the importance of MAB as a useful mechanism for strengthening the development base of the local and national productive framework and have supported it with tax incentives and economic aid to companies and investors.
Fixed-income markets, particularly those in which public debt is traded, again reflected intensely the global financial tensions. While in 2008 it was the lack of confidence in banks and the very sharp fall in economic activity that rocked the corporate debt markets, in 2010 it was the sovereign public debt of those countries with high budget deficits and weak growth that spooked markets.
Among the euro zone countries, the plummeting prices of Greek sovereign debt in the first part of the year and later those of Ireland made a coordinated and ordered rescue necessary and saved them from going to the debt markets. Despite these joint actions, the deterioration of confidence also spilled over into the public debt of other euro zone countries such as Portugal, Spain and Italy, pushing up yields and the premium over German benchmark bonds.
Fixed-income activity in European markets was very intense and, as a result, trading in the BME’s electronic platform of public debt increased 72% to €236,274 million.
The corporate debt market showed a reasonable level during 2010 although issuers found it more difficult to place their securities. Most of the issues were for amounts or volumes lower than in previous years. The total volume traded on the BME corporate debt market was just over €3 trillion.
The primary market ended 2010 with a total volume admitted for trading of €233,444 million. The balance outstanding was €850,186 million, 2.4% less than in 2009.
An important milestone in the BME corporate debt market in 2010 was the creation and launch of an electronic trading platform for fixed income aimed at individual investors and known as SEND (Electronic System for the Trading of Debt). By the middle of December, SEND had around 50 issues placed among individual investors. New issues will be added.
The creation of SEND, one of the first initiatives in this sphere in the world, represents an important step forward in improving the transparency and liquidity of the Spanish corporate debt market, which is anticipating the EU’s requirements in the future for fixed income.
The debate on new financial sector regulations again put the spotlight on the derivatives market. On the one hand, the trend of channelling these products to organised markets as a way to achieve increasing standardisation of them, and which are cleared via central counterparty clearing (CCC) was maintained and, on the other hand, the aim is to foster the transparency of OTC operations with difficulties to be standardised through the use of trade repositories.
The year 2010 was marked again by average levels of volatility well above the market’s historic average and peaks of volatility close to 50% not seen since 2008.
The BME’s derivatives market was particularly active in the segment of futures and options on indices, although the total volume of contracts traded in all products was 24% lower at 70 million.
Also significant in 2010 was the entry into force of the new regulations on official markets. Royal Decree 1282/2010, approved by the cabinet on October 15, regulates secondary official futures and options markets and other derivatives. It authorises the creation of futures and options markets “whatever the underlying asset” and opens up the possibility for MEFF’s counterparty clearing centre to operate not only with financial futures and options but also with other instruments, such as repos or energy products.
2010 was the best year in the short history of ETFs in Spain. Of note was the change in regulations approved in June and which contemplate the figure of the listed SICAV index. The green light was also given to the possibility of using, as well as fixed income and equities, any other underlying asset that the National Securities Markey Commission (CNMV) authorises. At the end of 2010, the value of the operations recorded was €5,968 million, 72% more than in 2009.
The number of ETFs stood at 65 at the end of 2010 and the volume of managed assets tripled in two years to more than €37,000 million, distancing itself from the trend of reimbursements affecting traditional funds.
In the market of warrants, certificates and other products, at the end of 2010 the number of issues outstanding at the disposal of investors stood at 3,375, referenced to 121 underlying assets (higher than in 2009). The range of products also continued to increase (bonus warrant and bonus cap warrant).
Latin American economies recovered in 2010 more quickly than expected from the global economic and financial crisis and the region’s average growth was close to 6%. Latibex, the BME’s euro market for Latin American securities, reflected this faithfully and also the favourable prospects. The FTSE Latibex index rose 9.7%.
In 2010, the Spanish market took important steps to implement and launch Europe’s first trade repository (REGIS-TR) under the framework of enhancing transparency in OTC derivatives operations by all counterparties, including non-financial ones. 2010 was also an intense year in regulatory initiatives to mitigate the difficult economic situation and boost confidence in the Spanish financial system. Among the exceptional measures taken, two had a big impact: the reform of the labour market and the austerity measures to reduce public spending and cut the budget deficit. Exceptional measures were also adopted to reform the legal regime governing savings banks so that, among other things, they can issue shares with political rights (known in Spanish as cuotas participativas) or create banks with capital divided in ordinary shares.
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