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Global Equity Markets in Focus

As we have highlighted elsewhere in this report, global The Chicago Board Options Exchange Volatility Index the reported increases in both available inventory and is working hard with key industry stakeholders to develop
markets, world economies and we as individuals (VIX) hit a five year high of 36 on the 24 December, leading on-loan balances are asset price inflation, rather than best practice and market codes of conduct to provide
have suffered from one thing in the past six months, to hedge funds and other AIMs starting 2019 risk neutral. significant new loans or equity assets coming into viable governance around these issues.
uncertainty. After something of a very challenging year Although equity markets have shown some strong growth, lending programmes.
for equity markets in 2018, 2019 has not brought the especially in the first three months of the year, hedge If we look at the first six months of the year in more detail,
sustained downturn predicted by many. Heightening funds were slow to redeploy capital on both the long and As we think more broadly about the role of lending and Fig 16 highlights how the market appeared to trade more
geo-political tensions, looming trade wars and changing short side. This conservatism led to something of a lack retail investors, it is worth noting the growing importance effectively with no real direction or momentum.
central bank policy have however, all negatively impacted of real investment conviction, and has prevailed for the of the sustainable finance agenda and ESG investment
market sentiment. Although it is not the role of this rest of the year to date. The continued uncertainty that we principles. For our markets, we have some very real It shows how equities made available for lending rose
publication to comment on the political ramifications of have discussed elsewhere in this report has manifested challenges to ensure that there is sufficient secondary broadly in line with equity market indices, whilst on-loan
Brexit, there is no doubt the uncertainties created by the itself in a generally suppressed equity market, with hedge market liquidity through the provision of securities balances moved within a very small trading range, in or
current political impasse here in the UK, combined with a fund leverage at modest levels throughout the first six lending to compliment and support investors in and around €1 trillion.
lack of clarity as to what exactly might happen next, are months of the year. around these markets.
only compounding the already challenging economic and None of the market volatility in terms of on-loan balances
political headwinds seen elsewhere. As at the end of June 2019, there were circa €1.1 trillion The provision of a deep and liquid supply of ESG securities seen in the latter half of 2018, was repeated during the
of equity securities on-loan from an available lendable will facilitate effective price discovery for investors, and first six months of the year.
Inevitably, our markets have not been immune to this supply of just over €13 trillion. This represented a ensure sufficient market liquidity to allow them to enter
increasingly complex and interconnected macroeconomic 6% increase in on-loan balances and a 19% rise and exit these markets/investments. This trading backdrop led to a fall in reported revenues
picture. We have already discussed in this report in securities being made available for lending by across the sector. Revenues from equity securities lending
how the end of QE has changed the dynamics of the institutional investors. Aligning the governance principles that are enshrined represented some 80% of revenues across the industry.
government bond lending markets this year. Similarly, within the ESG investment ethos with securities lending,
the broader economic backdrop has shaped investment These increases should however be considered against is also an important consideration for institutional In the first half of 2019, total revenues fell by some $900
management sentiment and therefore behavior in the past the previously discussed circa 15% increase in equity investors. It is critical that investors aspire to discharge million to $5billion according to data recently published
six months. market valuations over the period. Taking into account their governance obligations in an appropriate and by IHS Market, of which equity lending was the largest
experiences from prior reporting periods and the impact responsible way. To do this, it will be important that contributor to the downward momentum. In Europe,
The final months of 2018 saw significant de-risking by that changes in asset prices can have on securities institutional investors have fully developed approaches we did observe some greater volatility in reported on-
hedge funds that followed a rise in equity market volatility. lending programmes, we are confident that most of to both governance and lending. Both can exist, and ISLA loan balances. As Fig 17 highlights, there was some

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