In 2015, tension in the international financial markets increased moderately, resulting in greater volatility in share prices and corporate public debt.
Factors such as the rising disparity between monetary policies of the main central banks; the weakness in certain economies and areas, particularly emerging markets; falling commodity prices; Greece's talks with the euro area; or geopolitical tension, all helped generate uncertainty in the global financial system. However, the system remained highly liquid and showed it had faith in the central banks' powers and monetary policies to be able to get the economies back on track.
The economic provisions of the international agencies were revised downwards on two occasions over the course of the year. More specifically, in October, the IMF projected international growth of 3.1% for 2015, two tenths less than the previous forecast, and 3.6% for 2016. Emerging economies have been hit hardest by the reduced volume of global trade, with Latin America registering negative growth in 2015 and China's growth slowing down yet still remaining relatively high (+6.8%). Growth forecasts for the Eurozone as a whole showed better figures than in previous years (+1.5% forecast for 2015) but were still far from brilliant.
The European Central Bank (ECB) maintained its leading role in the single currency area. While the benchmark interest rate remained at 0.05%, it ramped up the expansive tone of its monetary policy through various unconventional measures, in response to weak economic growth and the risk of deflation in the area. In January, it announced the launch of a Quantitative Easing (QE) programme based on the purchase of sovereign assets on regulated markets for the sum of 60 billion euros a month over 19 months. At its December meeting, it announced a six-month extension to the QE programme, extending it to March 2017, and the inclusion in said programme of regional and local council bonds. In addition, the negative rates on deposits applied by the ECB to banks were reduced even further to -0.30% from the previous -0.20%. In turn, the Federal Bank stated on several occasions over the year that it intended to very gradually start raising benchmark interest rates in the United States. Taking a significant step forward in this respect, the Federal Bank increased its benchmark interest rate by a quarter point, to between 0.25% and 0.50%, at its last meeting of the year on 16 December 2015.
As a result of ECB intervention in the markets, the exceptional circumstances on the markets in terms of Eurozone debt are such that negative interest rates on public debt have become the norm: over half of the 19 single-currency countries have managed to issue debt maturing in up to two years with negative interest rates. However, although favourable financing conditions have been maintained, the low rates and uncertainty factors mentioned above have contributed to keeping the fixed-income markets in a state of extreme sensitivity, with episodes of great volatility and instability throughout the year.
Spain's macroeconomic figures are of particular note. With an estimated growth in GDP slightly over 3% in 2015, Spain has moved into a leading position in the group of large developed countries. Favourable tailwinds in the form of low interest rates, a weak euro, cheaper energy and the absence of inflation have strengthened the implemented structural reforms, internal consumer and investor demand, export performance and debt reduction in the private sector. However, there are still serious imbalances and threats to be addressed, such as the extremely high rate of unemployment, the public deficit or the growing level of public debt, in addition to political uncertainty.
The IBEX 35, Spain's main index, ended the year with a decline of (-7.15%) accompanied by a spike in volatility. Taking dividends into account, the decline is reduced to (-3.55%). From the lows of 2012 in the midst of the European sovereign debt crisis, the index has gained 60%.
The global aggregated indices ended the year at practically the same level as the start of 2015 or with slight dips. Returns varied between +0.15% on the MSCI World Index and (-3.77%) on the FTSE World. The three previous years have all closed with positive returns.
In 2015, the European stock markets achieved mainly positive returns largely as a result of the ECB's expansive monetary policy. The stock market in Ireland (+33.5%), Italy (+12.6%), Portugal (+18.6%), France (+8.5%) and Germany (+6.8%) registered increases above the global average. The benchmark EuroSTOXX 50 rose 3.85% in 2015. The Swiss index (-1.8%) and the UK index (-4.9%) both closed on a negative footing, as did the Spanish stock market. The Greek stock market index (-23.6%) was the worst in Europe after the Greek stock exchange shut down over the summer.
After several excellent years, the North American markets showed signs of the change in bias of the monetary policy and the global economic slowdown, with its indices closing the year with slightly negative yields: The S&P 500 was down (-0.7%) and the Dow Jones (-2.2%). In contrast, the Nasdaq 100 Index with its markedly technological components ended the year on a positive footing with an increase of 8.4%, returning to its highest-ever levels before the tech bubble burst in 2000.
At the sector level, bank stocks prices have had a less-than-brilliant year the world over. The North American sector index S&P 500 Banks is down (-1.14%) and the European STOXX Europe 600 Banks is down (-3.3%). In contrast, the non-bank financial services index STOXX Europe 600 Financial Services, which includes insurance companies, estate agents and other financial services is up 18.7%.
By company size, 2015 has been a very good year for small listed companies and especially European ones whose benchmark index, the Stoxx Europe for small companies, is up 19.2%. The Blue Chips on the MSCI World Large Cap index experienced a slight decline (-0,09%). Emerging stock markets have had a bad year, especially in Latin America. The MSCI EM is down (-8%) and the Latin American index FTSE Latibex Top fell (-34,6%), brought down in the main by Brazilian securities. Chinese stock markets have taken centre stage in 2015 due to their extreme volatility: The Shanghai Exchange shot up 65% last June only to fall over 40% later in the year.
In 2015, the Spanish Exchange confirmed a trend change that first emerged three years ago. The trading volume rose to 962 billion euros with an 8.9% increase from 2014. The 61.9 million trades recorded in 2015 represent a 12% decline compared to the same period in the previous year; however, this is still the second-highest figure ever recorded after the record-breaking results of the previous year.
This increased in trading has an impact on trading quality. In 2015, average liquidity by trading ranges on the IBEX 35 (the difference between the lowest purchasing price and the highest selling price) remained at an all-time low with an average value of 6 basis points, 1.3 points less than in 2012. As a result, the implicit cost of market trading fell for investors in Spanish securities who perform over 80% of their operations on the Spanish stock market trading platform, despite the increased competition between trading centres.
Yet again this year, Spanish stocks are top of the table in the rankings on Europe's leading stocks. Throughout 2015, in the ranking of trading in stocks in their market of origin belonging to the Eurostoxx 50 index, which includes the top 50 stocks in the Eurozone, shares in Banco Santander, BBVA and Telefónica were ranked in first, second and third place, while shares in Iberdrola and Inditex were also in the top 25. The weight of Spanish stocks as a percentage of all trading in stocks in their market of origin belonging to the Eurostar 50 index is 15%, which is higher than the weighting of the Spanish share index (11%).
Spanish equity continued attracting national and international investors during 2015 and non-resident participation in the trading volume stands at 84%. At the end of 2014, foreign investors owned 43% of all listed Spanish shares and the provisional data for the first half of 2015 raised this holding to 44.1%.
Collective investment has returned to excellent form in 2015. The equity in Investment Funds domiciled in Spain grew 12% in 2015, reaching 219 billion euros at year-end. This progress places the level of the equity managed at similar values to those at the end of 2008. Net subscriptions over the course of the year have exceeded 24.7 billion euros, mainly focusing on the categories of mixed fixed-income and mixed equity. In turn, the number of participants in investment funds increased by over one million since December of the previous year, exceeding 7.7 million in 2015.
The number of SICAVs, listed collective investment companies, continued to increase for the third year in a row, at a rate of over 100 in each financial period. By the end of 2015, their market value had risen to 33.6 billion euros.
SOCIMIs, real-estate investment trusts that are also listed (a legal entity that can be assimilable to REITs), have also been of significant note, in terms of incorporations and resources obtained through market mechanisms, as they are beginning to be seen as a useful tool for incorporating property leases into the securities market. Over the year, there were eight new incorporations, five SOCIMIs capital increases and two more of similar trusts that have raised nearly 3 billion euros. With these developments, SOCIMIs are becoming key players in the palpable reactivation of large-scale transactions on the Spanish property market.
Overall capitalisation of listed companies in Spain stood at 0.975 billion euros at year-end 2015, down 7.9% from the previous year. From the lows of 2012 and excluding companies domiciled abroad, Spanish listed companies have seen their market value increased by 340 billion euros.
Sectors that have gained market value in 2015 include Consumer Services with 39%, through IAG and AENA. Consumer Goods has also seen a notable increase in market value (41%), where Inditex, with a market value of close to 100 billion euros at year-end, heads the ranking of companies by capitalisation, placing much higher than Santander and Telefónica. The Financial and Property Services sector, that includes banks, is the only one to record capitalisation losses in 2015 with 16%. The good year had by medium capitalisation companies on the IBEX Medium Cap index was reflected in their 15% rise in capitalisation over the course of the year.
At year-end 2015, there were 3,604 companies admitted to trading on all segments of the Spanish Exchange. This figure represents a year-on-year increase of over 150, mainly due to the increased number of SICAVs listed in the corresponding segment of Spain's Alternative Stock Market (MAB, Spanish acronym), which already stands at 3,374. The presence of 11 SOCIMI (REITs) in their segment of the MAB is also of note.
After two years of strong recovery with just over 50% growth in net profit in both 2013 and 2014, this positive trend has continued in 2015 with 43% profit growth in the first half of the year. Spanish listed companies are becoming increasingly international and the contribution from international sales to their total turnover remains at the highest levels achieved in 2014, with close to 64%.
Shareholder remuneration remains the distinguishing feature of the Spanish Exchange, which stands out on the global stage with a 5.2% return on dividends at year-end 2015 according to data from MSCI (Morgan Stanley Capital International). Listed companies paid out 27.8 billion euros, which is 36% less than the previous year due to two extraordinary payments made in 2014 by the company Endesa, for a total of nearly 15 billion euros. Without the Endesa effect, total shareholder remuneration remained practically the same as in the previous year (-0.17%). Scrip dividends accounted for a third of total shareholder remuneration and the total amount, over 9 billion euros, is down from the previous year, reflecting the improved financial position of Spanish companies. There was also a significant increase in share depreciation, amounting to 3.66 billion euros in terms of market value over the course of the year, which is triple the figure from the previous year.
In 2015, total new investment and financing flows channelled through the Spanish Exchange by means of new shares from capital increases, new admissions to trading and public sale or subscription offerings reached 41.6 billion euros, up 15.3% from 2014. The Spanish market is once again one of the most prominent in Europe and across the world.
Capital increases have been especially significant, with over 156 operations up to November raising 29.7 billion euros. Increases to meet scrip dividend payments amounted to close to 9 billion euros, although this is down from the previous year.
If consistent financing of Spanish companies and a reduction of their excessive debt are together considered the conditions required to get economic growth back to a satisfactory and sustainable level, the stock market is playing a very significant role in achieving this goal. As a group, listed Spanish companies are pioneering a series of very positive changes aimed at reducing financial vulnerability among businesses. These changes include reduced leverage with greater weight of capital and changes with regard to debt, with less borrowing from the banks and a growing presence of both short-term and long-term fixed-income instruments.
The Spanish Exchange maintained a very notable position on the international IPOs market throughout the year. According to the Global IPO report from the consulting firm Ernst&Young, over the first nine months the Spanish Exchange was the top European exchange and the fifth worldwide in terms of public offerings. The IPOs of AENA and Cellnex Telecom were the first and the third largest trades in Europe and the public offering of Euskaltel represented the second largest trade in Europe in the third quarter of the year.
Over the course of the year, the funds obtained through these initial and secondary public offerings came to 8.47 billion euros, the second highest amount of the past 18 years after the 10.5 billion euros recorded in 2007. Seven new companies have been admitted to trading on the Spanish Exchange and a further 17 have joined different segments of the MAB: Nine joined the Growth Companies segment and eight joined the SOCIMI segment. In total, there have been 24 incorporations, not counting the SICAV.
In turn, activity linked to Takeover Bids has been more intense than in previous years, in line with the trends seen on the international merger and acquisition markets. Over the course of the year, nine Takeover Bids have been launched, some of a significant scope and all with a positive result. None of them were hostile takeovers and the corresponding settlement, which was monetary in all cases, came to 4.49 billion euros, which is over twenty times the amount recorded in 2014 and 2013. The largest Takeover Bid was that on Jazztel shares from the French company Orange for the sum of 3.18 billion euros.
Although the financing conditions for smaller companies have improved significantly in 2014 and 2015, these companies continue to be extremely dependent on bank loans, making them highly vulnerable during periods of credit clampdowns. A range of solutions have been proposed to remedy this situation, with the top solution being stock-market-based methods of alternative financing such as the MAB for Growth Companies or the Spanish Alternative Fixed-Income Market (MARF, Spanish acronym).
Following on from the previous year, the number of companies listed on the MAB for Growth Companies has continued to rise in 2015, reaching 34 companies at year-end, which is nine more than in 2014. Over these 11 months, new companies have turned to capital increases in a bid to secure new financial resources. In 2015, this strategy raised 70 million euros which added to the 41 million raised at the start with nine new incorporations, makes a total of 111 million mobilised in this segment of the MAB.
The MARF has now been up and running for two years, successfully fulfilling its founding purpose: to contribute to the financing of Spanish companies as a new, alternative source of financing to bank loans. This is achieved through the issue of promissory notes, ordinary bonds and project bonds by 20 companies that issue individually and over 100 companies that have obtained financing by converting their rights to recover debts and invoices into securitised bonds. Since its creation, the MARF has exceeded 1.3 billion euros in company issues and achieved an outstanding balance in excess of 1 billion euros at year-end 2015.
Over these past two years, 21 financial intermediaries have already been admitted to this market as Members, including the country's leading financing institutions, as well as 23 institutions as Registered Advisers.
Of all the investment products traded on the Spanish Exchange in 2015, Exchange Traded Funds (ETFs) have been especially significant. Over the year, this product slowly gained ground among both private investors and institutions, thanks to the easy access it provides to diversified positioning within a certain market, sector, region or strategy. In 2015, the trading volume of the 71 benchmark companies admitted to trading rose to 12.6 billion euros, with growth of 28.3% focused largely around ETFs which replicate the IBEX 35. The 173,079 trades executed in 2015 represent growth of 50%.
Activity in the warrants and certificates market rose to 1.1 billion euros, up 34% from 2014. In recent years, new types of warrants have entered the market that replicate novel investment techniques such as multi, discount, stay-high and stay-low warrants.
Very low interest rates and market uncertainty caused volatility in global Public and Corporate Debt markets to spike. Bond prices on the global corporate fixed-income markets also declined, triggering higher yields which, unlike Public Debt, had barely corrected at the end of the year.
In Spain, the Public Debt market mimicked international trends with some negative domestic aspects attributable to increased political uncertainty. Interest rates on 10-year bonds plummeted to record-breaking lows of 1.14%, then rose to 2.38% and closed the year at 1.76%. The risk premium increased to an average of 125 basis points, consistently outperforming the Italian premium while in 2014, the return on Spanish bonds was lower than on Italian bonds for practically the entire year.
In 2015, the Spanish Corporate Fixed-income market, AIAF, continued in its process of adjustment and reduction of the outstanding balance of issues, which fell to slightly above 534 billion euros, 38% less than at the close of 2012 but already on the road to stabilisation. Trading totalled 515 billion euros for the year as a whole, which is down 51% from the previous year mainly due to the low interest rates and the above-mentioned balance reduction. However, the primary bond market is returning to normal, with a 45% increase in new issues maturing in the medium and long term. In contrast, the promissory notes market continues on rocky ground, mainly due to the low returns offered by these instruments.
Over the course of the year, trading on SENAF, the Public Debt trading platform operated by BME, rose to 109 billion euros, 3% below the accumulated trading recorded for 2014. As for SEND, the platform for private investors, trading amounted to 307 million euros, with year-on-year growth of 11.7%.
At 47.8 million euros, the total number of contracts traded in 2015 on MEFF, the Spanish futures and options market, was down 15% but up 5% in terms of underlying nominal volume. The market's main product, the IBEX 35 Futures, was up for the fourth year in a row, while the volume of options and futures on individual shares declined. The open interest on IBEX 35 Futures is at a record high, while the open interest on equity futures and options is at a similar level to the previous year. In line with the spot markets, implicit volatility in IBEX 35 options has spiked an average of four points compared to the previous year, to 23.3%.
Remember that under European regulations, in September 2013 market activities were separated from clearing house, settlement and counterparty activities. MEFF Sociedad Rectora del Mercado de Productos Derivados took charge of market activity and BME Clearing became responsible for clearing house activity linked to options and futures.
BME Clearing Power is the BME service for the electricity market that allows for trades on derivatives based on electricity production in Spain to be cleared via a Central Counterparty house. This segment of electricity derivatives has continued to attract numerous entities in this sector, and the number of participants has increased by 38% from 78 in 2014 to 109 at the end of 2015.
Clearing activities were hampered by very unfavourable market conditions, under which the volume of OTC derivatives fell 49%. BME Clearing reduced its volume of registrations by 38%, thereby continuing to increase its quota. The volume registered in 2015 rose to 23 TWh. This volume represents 8% of electricity consumption in Spain and the interest on open contracts achieved a volume of 8.5 TWh at the end of the year, which is 234% more than the previous year and a record high.
The central counterparty services provided by BME Clearing also include REPO which offers a central counterparty service for public debt repos.
In 2015, the monthly average was above 60 billion euros in 664 transactions. At year-end, there were 30 members, of which 28 are Spanish and two are foreign. The financed open interest, i.e. the average outstanding balance of unmatured transactions, equivalent to the financing provided, reached 26.3 billion euros at the end of 2015, which is similar to the 2014 figure.
In December 2015, a new BME Clearing segment was launched that provides Central Counterparty services for interest rate derivatives known as IRSs and which also includes products such as Swaps, OIS and FRAs.
This new segment was created in response to new legislation on the "clearing obligation" which requires financial institutions, insurance companies and other non-financial institutions to clear all interest rate derivatives that are subject to certain characteristics with a clearing house from 2016 onwards, or 2017 depending on the type of institution in question.
Further to the effective obligation envisaged in the EMIR European regulation, which stipulates that derivatives transactions on all types of financial assets must be recorded in a register, in January 2014 the REGIS-TR came into effect. REGIS-TR is a European register (trade repository) that was designed by the BME and the German stock market following authorisation from ESMA, the European securities market authority.
For the past two years, European entities have been reporting derivatives transactions to authorised trade repositories pursuant to EMIR. During this time, activity on the REGIS-TR has reached 1,000 clients and over 1,200 open accounts. Each day it receives around seven million new transactions and nearly 20 million messages.
Given that the obligation to record transactions seeks to mitigate systemic risk by improving risk management, reducing interconnection between interests and increasing transparency, regulator relations are extremely important. In this respect, REGIS-TR already provides information to over 25 European regulators, thereby strengthening its position as a channel of communication between market participants and supervisors.
In addition, since October 2015, REGIS-TR now offers the service of recording transactions on energy products pursuant to European regulation REMIT, thereby broadening the range of solutions offered to participants.
Within the field of national legislation, the star initiative was the approval of the Business Finance Promotion Act (Ley de Fomento de la Financiación Empresarial). One of the objectives of this Act is to lay down the regulatory bases required to promote the use of alternatives to the bank route, such as capital markets, direct corporate financing and other non-bank financing alternatives.
The Act amends Law 24/1988, of 28 July on Securities Markets, in order to promote the movement of companies from a multilateral trading facility to a regulated market, which will help MAB companies to move onto the Exchange and vice versa. It also amends the issuance of obligations, removing the limit on issues in effect until now so that limited companies and partnerships limited by shares cannot issue obligations beyond their own resources. This Act also regulates the establishment, for the first time in Spain, of a legal regime for crowdfunding.
In 2015, the Tax Reform approved in November 2014 came into force, bringing about very significant changes in the way personal income and savings are taxed in Spain. The most significant measures include a gradual cut in interest rates, a uniform treatment of gains, an end to the exemption from income tax on dividends, a change in the way pre-emption rights are accounted for and, in the world of business finance, a limit on the amounts deductible for tax purposes with respect to borrowing costs and equity incentives.
In connection to the Tax Reform, another new piece of financial legislation came into force in 2015; Royal Decree Law 633/2015 of July, on emergency measures to reduce the tax burden on income tax payers and other tax measures. This legislation brought forward to the second half of 2015 the progressive reduction of rates previously forecast for 2016 under the Tax Reform set forth in Law 26/2014 on Income Tax and non-resident income and Law 27/2014 on Corporate Income Tax.
In terms of European securities markets, following the approval in July 2014 of Directive 2014/65/EU on markets in financial instruments, known as MIFID II, and Regulation 600/2014 or MIFIR, the European Securities Market Authority (ESMA) published on 28 September 2015 a set of 28 technical standards on regulation and implementation, which implement various provisions of MIFID II and MIFIR.
2015 also saw the launch of a project to create a Capital Markets Union. On 30 September 2015, the European Commission published the "Action Plan on Building a Capital Markets Union". This document acknowledges the fragmented and underdeveloped state of European capital markets and proposes the adoption of 33 measures to remedy this situation. These measures are designed to encourage a greater degree of financial integration, facilitate access to financing for European companies in different stages of growth, broaden the range of investments available to investors and improve the stability of the European financial system.
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