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Markets Update: Constructive Conditions for Equity Issuers and Investors

2020-06-12

Lizzie Reed of Goldman Sachs’ Investment Banking Division gives an update on what’s been driving investor interest in equity markets. 

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Welcome to our exchanges, Goldman Sachs Markets Update for Friday June twelve. Each week we check in with a leader across the firm to get a quick take What they're watching in markets objects? You would go ahead of corporate communications in the firm and today I am delighted to be joined by Lizzie Wreath of our investment banking division, welcome leisure to the programme. Thank you, Jack. Before we diving just give us a quick indrawn, what you do her good men and in a white what your day job is minor, fond thinking again Jake for having me on. I guess the question that was all I ask is: what is the equity, cynical, dusk and so, in short, arches? responsible for helping investment, banking clients, access equity and equivalent capital to arrange a product offerings. Inclusive of IP owes follow lawns and convertible notes
In addition, Jake our teams more includes working closely. What archer carries a vision to provide opportunities for investing clients to deploy capital with inequities? I wouldn't to say that, when the very fortunate position to be at the centre of jelly flows for some of the most important and most impact for new issue, transactions have been happening in the: U S: equity markets. Today, oh yes, certainly been busy year. Also lets, let's frame that twenty twenty has been nothing short of a vengeful, give a low context to the market and where we stand today, Shore happy too so. First would say- and this is an obvious statement, but equity investors have navigated a tremendous amount of alternately. Yesterday, and now we're sing, much more stable environment, despite the ongoing back, her headwinds to put some framework around that for you, but I think it is important to focus on would be multiples in this performance and then also the volatility index, said the essence
if a hundred price to earnings multiple at the end of two thousand nineteen was twenty one types during the March cell down in equity, is the p multiple for the ESA. Ninety five hundred retracted Sub eighteen times But in recent weeks we have seen that steadily growing higher and as recover closer to twenty two times. In addition to look at indices performance major equity indices have recovered thirty five percent or more often march laws that we experienced on March twenty third and but not least, the banks, which is undoubtedly index that the market tracks has retract From the intraday highs at eighty five, which once again occurred on March, twenty third currently training the loaf Thirty's I heard, like this, because it stone elevated level versus the fighter average, which is in the low teens, so hold on
recovery that we ve seen the past ten weeks has been nothing but impressive in terms of its magnitude, but also its persistence, and what that really indicates to me, as an investors have broadly regained. The risk appetite, however, remain balanced, there are still a lot of unknowns about the future outlook of global economy. Is party only in relation to the cuban nineteen pandemics and what you'll see that the market is reflecting high and volatility that still remains even have. Prices have mostly recovered their pre crisis levels ok, so you described an atmosphere of higher valuation. Still heightened volatility bode well off its heights in March, This morning we saw a little bit of a sell off, but one of the technical factors that have been driving the equity markets higher against really weak macro backdrop, of course. So first we can ignore. Today's market perform particularly in terms of equity and the sea, is, but I think you can take a step back, and we look at that. Technical standards that have been driving markets higher the impact.
The thing to do is to break down the current demand and positioning across different types of investors so nervous sure funds. Their current, sitting on higher cash balances there tell investor, has been uniquely interested in buying equity, is over the past three months: the long short hedge funds nearly did resolutely right size, exposures, early during the initial market, draw down, and we obviously cannot forget the systematic or twont training community, whose current position as a better buyer as the market has rallied. So when you add up all of these investors and has created an inspired recovery offer market lows, if you look at the start of the rally, the recovery with centralized and a handful of starts, would I find more encouraging today? Is the breath,
recovery, which is expanded to additional sectors such as sickles, financials and value stocks. You know Jake, I want to spend one moment and just really expand upon some of the details about investor base and housing positively impact and markets. So New S, mutual funds as Paul which, by our GS, research team on May twenty second under the muse. On monitor cash as a percent share of assets as increased point six per and from December of two thousand nineteen to March of two thousand twenty and fast it's the highest allocation to cash that were seen from yes, mutual funds since November two thousand eight. So what does that mean for you as equity markets? It means I a special funds have been able to redeploy those cash positions into the markets and more attractive levels, as well as into the new issue: equity capital markets, the retail investors important died in two house
old comprise the largest per cent of the. U S: equity market. At approximately thirty six percent followed, the act of mutual find at approximately seventeen percent, and that combines two basically fifty three percent in comparison, the hedge fund community, makes about three percent of the market some further. Has several months. Retail has been a net buyer of Eu Us equities Forest ample, if you look at the Gs Retail favours basket its upstairs Ten per cent near to date In addition, if you look at the top for retail brokers in the month of April, single name share, training activity levels have been five times larger than the media inactivity per month since two thousand and eight this type of investing activity has been very supportive as affair you're in the market recovery and the law.
From then on. Hide again is hedge fund positioning. The traditional longshore equity Hedge Fund has benefited in this rally, possibly leveraging. We saw early in the market drawn out the community has been able to capitalize on better buying of pro stocks which continue to perform well, while me cleaning, limited exposure, verses being short, many of the names and single stocks that have been market loggers, these market loggers and pass one or two weeks have significantly rallied so Fortunately, the long short headsman community has not paired their year today gains in the recent rally. They have not needed to cover their short positions. So, to put that, in summary, the pace of the market recovery has been historic was only happened because a ripe pieces had been in place so that's number one cash on the sidelines too. Attractive entry point for equity investors to redeploy capital. Three ample liquidity and go
last but not least, strong demand for both institutional and the retail investor fastening the retail investor against people at home than they have nothing else to do so through investing so rosy put all this in context force what what does it mean for yours, equity, capital markets, where you live and breathe everyday of course said. For issuers. We are seeing constructive financing conditions and for investors we are seeing compelling opportunity to invest The first set of companies. What be observed in the last couple of weeks is a shift in the positioning of the issuer base and the beginning of the cuban nineteen pandemic. Many offerings that came to market were defensive in nature. Rob issuers. You were impacted by Cuban nineteen in the near term, utilised capital markets to bolster balance sheet liquidity and we saw their sport in the format of fixed income products, as walls with an equity is. However, as a market destabilized, we ve seen issuer activity migrate to more offensive in nature, an exam
of that would be an issuer raising equity to proactively deliver an issuer raising equity to build cash for a future emanate opportunity. In addition, I think it's important to highlight that issuers had extensive many of options across products to optimize reproach you raise is at the most efficient cost of capital, so Fergus ample and the beginning of the market. Draw down, we receive significant outreach from the sponsor or beseech immunity to invite steam companies would be a pipe. A pipe is also known as a private investment in public equity, but the rapid, recovering the debts and the pricing and public markets as I'm so compelling and many issuers quickly pivoted to a public offering format. So if you put that together, the resulted improving financing conditions and invest repositioning activity, levels for U S. Equity awaited offerings has been incredibly robust here today, Some numbers around that two thousand in twenty year today, equity issuance across
common equity, as was convertible offerings tunnels a hundred and eighty six billion does of sixty five percent year over a year, increase June alone issue and stands at a hundred and thirty three billion. That's semi two percent of your daddy issuance in May of two thousand and twenty. It was the busiest month in history. For U S listed ecuadorean offerings at seventy eight billion easily. Eclipsing the previous record in December of two thousand nine, which was sixty six billion interest For the month of June, we have not seen a slow down in activity. Some months ago, volume stands at thirty billion. So if you look at the volume composition, Esben skew towards marketed, follow, wants and comparable offerings. However, in the past. When she, too, we exclude experience and mobilization of ip activity levels and so forth. Ample nine IP owes price. Last week for a total, no I'll buy you a five billion subject: the army.
The question that we continue to field is Arthur signs of fatigue and the: U S, equity capital markets, and the answer is no. The robust supply than has been simply met with ample investor demands, and this evident. Both the pricing terms are issuing, clients are achieving, but also in the aftermarket performance are investing clients for capturing so far issuing clients. The average file to offer discount for marketing follow one in two thousand twenty year to date is eight point nine percent- that's only point. Four percent higher than where it was in two thousand nineteen year today, that's a remarkable statistic, given the volatility that the market has been enduring and for investing clients, the average performance of equity capital market activity has been positive, really presenting an opportunity for them to dry portfolio returns so, for example, the average IP a year to date and the aftermarket is up seven,
in per cent the average market follow one offering is up an average of five percent. So total. We remain very positive and very constructive, despite this unpressed backdrop, markets have basically return to a functioning status and we remain committed to both are issuing and investing clients as we navigate. The current environment needs fascinating how healthy that markets been in this period, despite all the volatility, as you said so elections hard. But what what do we expect? Looking for the second half of the year point time, Jake, we don't anticipate any change in the piece of activity we have a well functioning market are issuing. Clients are pleased with her access to capital after quite a volatile period and the macro backdrop and are investing. Clients are given the opportunity to put money behind some very high quality comforting its said he ass. He was near term. Talus are to monitor one is obvious, the upcoming earning season and too
We're very focused on that November. Election right will Lizzie thanks for joining us today. Great conversation, thank you. So much are having you Jake. I really appreciate your time in that offer this week's markets update on exchanges of Goldman Sachs in case you missed it check out or other up so this week with Steve Strong and a senior miser for Goldman Sachs a new framework for investing after comin. Ninety thanks for listening, and we hope everyone has a great and safe. We can't this part asked was recorded on Thursday June. Eleventh, two thousand twenty. Thank you very much. All price references and market forecasts correspond to the date of this recording. This podcast should not be copied, distributed, published or reproduced in whole or in part. The information contained in this package does not constitute research or recommendation from any Goldman Sachs Entity to
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Transcript generated on 2021-07-02.