In 2011, the global securities markets and financial instruments were in a permanent state of uncertainty over the capacity of developed economies to consolidate the recovery begun in 2010 and return to a path of sustainable growth. The latent risk of a global economic slowdown as monetary and fiscal stimulus packages in developed countries petered out came during the second half of the year, at the same time as the fiscal crisis worsened in many of these countries. Expectations of paltry growth intensified doubts on the digestion of large volumes of debt accumulated by the public and private sectors and on banks’ situation in developed countries. Four years after the tensions began in 2007 which ended up affecting all spheres of the global economy, particularly banks and financial activity, the situation is far from stabilised.
The sovereign debt crisis intensified the liquidity and solvency risks of euro zone banks, already weakened by four years of problems and, against a backdrop of a profound lack of investor confidence, brought about measures to recapitalise banks.
These developments were keenly felt in Spain where the stock and public debt markets were hard hit and very volatile, reflecting the combination of external and internal factors behind country risk – economic weakness, a high fiscal deficit, external indebtedness and the fragility of part of the banking system.
It was a difficult year for world stock markets whose expectations of a return to pre-crisis levels receded as the year advanced. The global sphere indices dropped 8% in 2011, reversing the recovery, which began with substantial gains in 2009 and continued in 2010.
As could not be otherwise, continental European indices declined by more than 8%, especially the Athens composite (-52%), the Austrian ATX (-35%) and to a lesser extent Italy’s FTSE MIB (-25%), the Portuguese PSI (-20%), the Bel-20 (-19%), DAX (-17.5%) and the CAC 40 (-17%). The Euro Stoxx 50 shed 17%. In Spain, the Ibex-35 dropped yet again (-13%), penalised as in 2010 by the increase in country risk.
The volume traded in 2011 was €925,000 million, 11% lower than in 2010, largely as a result of the measures taken by the supervisory body to ban short selling on some shares temporarily, following the tensions in world markets in August.
In a turbulent environment, the market model functioned again with solvency when providing liquidity, transparency, valuation and guarantees to investors via mechanisms supported by very advanced IT platforms. Over the past few years the spread between the best offer and demand prices has dropped significantly and remained at very narrow and efficient levels even when, as happened in 2011, market conditions accentuated the volatility and there were frictions such as those sparked by the temporary ban on short selling. The average spread of the Ibex-35 during 2011 was 0.09% (more than 0.10% in August and September).
Market liquidity was seen again in the trading volumes for the shares of the main listed Spanish companies in a European reference framework and in the fact that this liquidity is concentrated in the Spanish market, their reference market. Santander, Telefónica and BBVA were among the five most liquid shares in the EuroStoxx 50 by trading volume in their admission market, Repsol in sixth position, Iberdrola in 16th and Inditex, which joined the euro zone’s 50 main stocks in September, in 27th place.
Market capitalisation stood at just over €966,000 million at the end of 2011, 10% less than in 2010. The hardest hit sectors in terms of loss of value were telecoms and technology, basic materials, industry and construction, reflecting the impact of the increase in Spain’s country risk on share prices.
The number of companies admitted in all segments of the Spanish stock market was 3,277 at the end of 2011, lower than in 2010 because of the ending and closure of some SICAVs which traded on the Alternative Stock Market (MAB).
The results of listed Spanish companies reflected the deterioration in the Spanish economy and in the entire world and they were unable to consolidate the recovery begun in 2010. However, at the end of September 2011 the 21% fall in profits (€26,924 million) for all Spanish companies listed on the main market was influenced by the extraordinary results in 2010 and offered some positive points, such as the fact that sales of industrial and service companies rose 7.5%, those abroad of the Ibex-35 companies accounted again for more than 50% of their total turnover and the profits of medium-sized firms increased by almost 4%.
Once again, and this has been the trend during the crisis, listed companies remunerated their shareholders through dividends and other formulas increasingly adapted to the needs of their owners in order to keep shareholders loyal and demonstrate the soundness of their competitive position and their confidence in future positive expectations. In 2011, listed companies paid out €33,659 million in dividends, 37% more than in 2010. The year 2011 set a new record for shareholder remuneration in the Spanish stock market. Of note in the total remuneration was the sharp rise in scrip dividends (almost €4,000 million) under which shareholders can opt to receive their dividend in the form of shares, either new ones or from treasury stock.
Particularly noteworthy was the role played by stock markets in the current climate of difficulties in obtaining loans from banks and the conviction that the volume of debts of economic agents must be reduced and that excessive recourse to credit does not contribute solidity to sustained economic growth.
Despite the uncertainties, the proportion of finance in the form of capital continued to increase. Listed companies increased their capital by €19,700 million, more than €2,000 million above the figure in 2010. Many of these capital increases were related to corporate operations for restructuring and cleaning up the balance sheets of banks in Spain in order to strengthen their equity and adapt to the new regulations regarding capital.
Two of the main listings in 2011 were those of Bankia and Banca Cívica via a public offering of new shares that injected €3,692 million funds into these former savings banks. Also notable was the incorporation to the market of the DIA supermarket chain after the distribution of all its shares among the shareholders of the French Carrefour, the former majority owner of the company. In January, one of the world’s main airlines, IAG, the result of the merger between Spain’s Iberia and British Airways, was listed in London and has a secondary listing on the Madrid market.
In 2011, the total new investment flows channelled by the Spanish market via public offerings of sale and subscription, capital increases and new admissions amounted to more than €37,000 million, one of the highest figures of recent years and reinforcing the role and usefulness of the Spanish market in the current crisis.
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 expanding, promoted by the BME and designed to facilitate the access of SMEs to the securities markets, enjoyed its third year. At the end of 2011, it had 17 listed companies, five more than in 2010, and continued to gain a reputation and soundness as an alternative source of funding in an economy with a credit squeeze on smaller companies.
As well as five incorporations (Euroespes, Catenon, Lumar, Sequoya and Griñó), there were five capital increases amounting to €19 million by already listed MAB companies. The combination of finance, liquidity for shareholders, constant valuation and public recognition of the companies makes the MAB a very useful mechanism for strengthening the development of the local and national productive economy, as has been recognised by various public institutions which have supported it with tax incentives and aid for companies.
The deterioration in the global economy and the financial tensions in Europe also hit Latin American economies. This was reflected in Latibex, the euro market for Latin American securities of the Spanish stock exchange. Its main index, the Latibex Top, declined 9%. The incorporation of the Colombian company Inversiones Suramericana, saw the entry of a new country into the market, which already has firms from six of the region’s main economies.
The European public debt markets continued to be the focal point of global financial tensions. The uncertainty over public debt in the euro zone countries with the largest fiscal deficits and the weakest growth intensified and produced new episodes of tensions in the already prolonged global financial crisis that began in 2007.
Portugal and a second rescue of Greece in 2011 were added to those coordinated by the European Union and the IMF for Greece and Ireland in 2010, triggering a chain reaction of contagion in the public debt secondary markets. This particularly affected Italian and Spanish issues whose prices plummeted and pushed up bond yields, increasing the risk of loss of access to finance markets by these two countries
In Spain, tensions on public debt were reflected in interest rates and trading volumes, according to the Central Book-Entry Office for Spanish Debt, supervised by the Bank of Spain with settlement by Iberclear, surpassed the record in 2010 with €6.8 trillion in cash operations. Electronic transactions in this market, mainly channelled via the BME public debt trading platform, were also higher than the record volume in 2010 of almost €80,000 million in bonds
Interest rates continued to rise in 2011 and remained subject to unprecedented volatility for this type of financial instrument. The 10-year benchmark bond rate began the year at 5.45% and on November 25 reached a high of 6.67%, the highest level since the euro’s launch. However, the most important thing was not the rise in interest rates in absolute terms, but the comparison with the 10-year German yield. The spread between the two (the risk premium) widened during the year to 3.25 p.p. and at times reached 5 p.p. The increase in the 10-year Spanish bond risk premium against the German benchmark has become a key indicator of the serious credit restriction problems and the rise in the cost of funding of public administrations in Spain
Despite the difficulties suffered by debt issuance markets, the performance of the primary market was noteworthy. The volume of new debt issues in 2011 rose 24% to €278,554 million. The outstanding balance at the end of 2011 was €882,395 million, up 3.8%. Of note was the short-term segment, represented by commercial paper, which grew significantly in the last months of the year as a result of the intense use made of it by banks to capture funds from individuals.
Trading in the corporate debt market was very intense (+49% to €5.44 trillion).
The year 2011 was the first full one for the Debt Trading System (SEND), the open electronic platform, particularly focused on individual investors, which was created in order to contribute greater transparency to Spanish fixed income and enable market members to comply with regulatory requirements and guarantee to customers the most favourable prices and conditions for executing their orders.
After a quiet start to the year, the Spanish futures and options market on equities reflected as of August the full force of the tensions in financial markets via the volatility implicit in the prices of listed derivatives, with highs of more than 60% as in the worst moments of the financial crisis. The total volume of traded contracts was 59 million, 3.8% less than in 2010 despite the impact of the ban on short selling as of August and increasingly questioned by undesired frictions and effects between the various markets of products and instruments, both cash and derivatives.
In the regulatory sphere, the derivatives markets continued to play a key role during 2011. US and European regulatory bodies expressed their firm will to move trading of these products from the OTC market of bilateral trading to the electronic platforms of organised markets as a way to achieve increasing standardisation and settlement via central counterparty clearing houses. The figures of the Bank for International Settlements for the first half of 2011 show that almost 90% of the outstanding notional volume of contracts related to OTC derivatives were traded bilaterally and away from organised markets and clearing houses.
The number of exchange-traded funds at the disposal of investors in the Spanish stock market continued to grow. There are now 75 ETFs with more than €30,000 million under management. The latest incorporations complete the offer of strategies that traditionally were restricted to institutional investors such as, for example, those of double leverage or others allowing exposure in the market in bearish situations.
The warrants market also increased the range of investment alternatives. In 2011, 9,163 new issues of warrants and turbo warrants were admitted, 12% more than in 2010, and at the end of 2011 4,345 issues were admitted (+24%).
MEFF Power began to operate in 2011, offering central counterparty clearing house services for derivatives on electricity. MEFF, the Spanish futures and options market, has been providing various risk management services to power companies since 2006 and has been managing tenders of primary energy options. A total of 24 members joined this service during the year among the main power operators, investment banks and brokers.
Whereas the Spanish stock market took important steps in 2010 to put into effect the first European registry of trade repositories (REGIS-TR), in 2011 the main novelty was the launch of a service for the forex market and strengthening derivatives on interest rates.
The year 2011 was a particularly intensive one in regulatory measures both one-off as well as structural in order to tackle the difficult economic situation and, above all, strengthen confidence in the Spanish financial system.
Among the exceptional measures was the reform of the Spanish constitution to guarantee budgetary stability, strengthen Spain’s commitment to the European Union and secure economic and social sustainability.
Equally important were the reforms for the financial sector which revolve around two main areas: boost the capital of banks and adapt the Fund for Orderly Bank Restructuring (FROB) as the state’s instrument for facilitating compliance with the new rules on capital. In addition, the Deposit Guarantee Fund for Credit Institutions was created in October, unifying the three existing ones.
On the last working day of 2011, the new Spanish government that took office after the November elections approved a series of urgent budgetary, taxation and financial measures to lower the fiscal deficit by cutting spending and raising revenue. They included a rise in personal income tax rates in 2012 and 2013 and an increase in the tax on savings to 21%.
As regards infrastructure for the securities markets, work began on adapting regulations in order to produce the biggest reform of settlement, clearing and registry of securities markets since 1992. The main reform will be the introduction in the post-trading of shares of the figure of the central counterparty entity.
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