What future for global stock markets after COVID?
The COVID pandemic is changing the face of stock exchanges around the world and threatening the continued hegemony of the US NASDAQ and the New York Stock Exchange (NYSE). Tensions between the United States and China and Brexit are contributing to the crisis.Alissa kole writes thatstock exchanges in developed markets, reconstituted into technology companies,will face an uphill battle in light of the ongoing political and financial dynamics. Among its other unintended consequences, the pandemic continues to change the face of stock exchanges around the world. Over the past two decades, the trajectory of the stock markets has been quite linear and therefore predictable: they were demutualized or privatized then consolidated, until recently as part of horizontal sectoral mergers which continued unabated even last year (i.e. Euronext acquired Borsa Italiana of the London Stock Exchange). Yet this linear developmental trajectory of the forex industry is now disrupted by a number of unique trends with long-term consequences for the sector and for the future of global financial markets. The established hegemony of the US NASDAQ and the New York Stock Exchange (NYSE) historically competing fiercely with the London Stock Exchange, as well as a few other major stock groups faces an increasingly uncertain future in the post environment. -pandemic. The pandemic is not the only culprit: other trends, notably Brexit, have cast shadows over the future of the LSE as a top listing and investment destination. The exchange had reacted quickly, proposing to change its listing rules first to court the potential listing of Saudi Aramco, the Saudi oil giant, and more recently with a new proposal to authorize the listing of companies with double class of shares in its Premium segment, which met an outcry from investors. Across the Atlantic, Sino-US tensions during the Trump presidency have dumped in the capital market space, with the result that three major Chinese issuers were forced to withdraw from the NYSE. A second, rather controversial executive order requires dual-listed companies to allow the American Public Company Accounting Oversight Board (PCAOB) access to their audit records, a measure the Chinese government has fought against for years. If implemented, many more Chinese business delistings from US markets could ensue over the next three years. If these different trends are extrapolated into the future, the hegemony of the New York and London stock exchanges appears far from certain in the long term. Many stock exchange groups, notably NASDAQ and Euronext, have a long history of recognized limits of their historical model as listing / trading platforms and have essentially evolved into technology companies, providing services not only to their issuers but also to other smaller markets. The recent acquisition of Institutional Shareholder Services (ISS), a provider of governance and integrity solutions and rankings, by Deutsche Borse (DB) highlights that exchanges now recognize that to remain relevant in an environment of depressed listing activity and financial innovation in the form of PSPC, horizontal mergers and acquisitions will no longer suffice to ensure their sustainability. Perhaps this is why no regulatory concerns were raised despite a conflict of interest ISS always rates companies listed on DB. Yet even vertical acquisitions such as DBs purchase of ISS or NASDAQ acquisition of Puro.Earth, a carbon elimination market, may not be sufficient to maintain the competitive position of established exchange groups. With political developments in Hong Kong moving closer to Chinas sphere of influence, the Hong Kong Stock Exchange may become a more acceptable alternative for secondary listings by Chinese issuers wishing to tap into sources of foreign institutional capital (especially if US quotations will be subject to monitoring by the PCAOB). Chinese issuers will be able to tap into global institutional capital via Hong Kong provided that political interference in the stock market (such as its recent announcement to hide the identity of administrators) remains minimal. Indeed, the Hong Kong market is poised to be one of the many beneficiaries of the changes in the landscape of the capital market and, by extension, the stock industry. This is not the only one. In a bid to deepen local capital markets, Dubai decided earlier this year to require all locally domiciled public joint stock companies and even others operating in the UAE that meet specific income requirements from register their actions locally. So far, while many regulators have offered incentives to list small cap or family companies (i.e. Employment Act in the United States), none has formally required a national listing, although in some markets the pressure for a national listing exists, sometimes taking precedence over the interests of companies. Dubai Ports (DP World), for example, delisted its shares from the LSE in 2015, to return to the NASDAQ Dubai listing, before radiation fully and reverting to state ownership in 2020. However, the return to state ownership is far from the norm. The reverse trend can be expected in most emerging markets where sovereigns are overburdened with debt due to COVID and, if market valuations are favorable, they could list minority stakes in national state-owned enterprises (SOEs). . Saudi Arabia, which listed its national oil giant in 2019 on the local Tadawul stock exchange, elevating it from an unknown frontier market ten years ago to today the largest in the region, has just unveiled a program of privatization of 55 billion dollars. Not only that, but in a little-noticed advertisement Atlantic Healthcare, a UK healthcare company, ad earlier this month, her plans to follow the LSEs debut with a roster from Tadawul, who herself announced a few weeks ago that she was going to privatize and self-register. While the regulatory regime governing listings in Saudi Arabia has for many years allowed double announcements in the hope of attracting companies from Arab countries with lower domestic trade volumes, this has not yet materialized. If it goes ahead, Atlantic Healthcare will be the first foreign company to be listed in Saudi Arabia. The significance of this announcement is that it has the potential to change the status quo whereby advanced country exchanges welcome listings from countries with less established markets. As developed market companies raise funds in cash-rich emerging markets such as Saudi Arabia and are subsequently encouraged to list locally, the direction of foreign listings may well shift in favor of emerging market exchanges. . A similar logic has unfolded in the world of sovereign wealth funds, where implicit industry rules have encouraged foreign asset managers to be domiciled in local national financial centers to obtain mandates. As emerging markets such as China and Saudi Arabia rethink mechanisms to deepen their capital markets, they may develop more explicit mechanisms to require domestic companies to be listed locally and encourage foreign issuers raising capital. private individuals within their borders to do the same. While it is premature to announce a fundamental change in the stock market landscape, signs of fierce competition abound. Unlike big tech, which has asserted its dominance through acquisitions, solidifying its role throughout the pandemic, the developed market exchanges that have emerged in recent years as predominantly tech companies will face an uphill battle in the past. light of the current political and financial dynamics. Notes: