We are pleased to present our observations on trends in equity and debt capital markets (ECM and DCM) in FY18 and our predictions for FY19.
We're seeing some important trends in capital markets.
Equity capital and secondary raisings fell for a second consecutive year in a cooling market. While Australian ECM activity was subdued, there was still some movement with many ASX-listed acquirers raising funds to pay cash consideration for targets. Both real estate investment trusts (REIT) with sectoral exposures and also the agribusiness and food sectors continue to come forward as quality IPO candidates.
While global DCM markets had a relatively strong start to the year, more recent bond activity has been affected by interest rate hikes in the US and instability in global stock markets. These sentiments have also been felt in Australia, where DCM activity has slowed down.
The Financial Services Royal Commission is also having a dramatic impact on the debt funding landscape, with two clear effects – strong growth in non-bank lending, and extensive non-bank M&A. It could, however, have a chilling impact on businesses in the financial services industry looking to go public.
Despite recent volatility, we expect that elevated equity market valuations will remain for FY19.
While investor interest in certain REIT offerings may have peaked, we expect to see continued demand in the specialist REIT sector (for example, health REITs) over the next 12 months as investors seek to obtain exposure to high quality assets which have attractive yields which they are not able to access through direct investment.
The M&A bull market could now be entering a final phase that is characterised by desires to execute increasingly ambitious deals within high-pressured timelines.
The global equity market is shrinking at the fastest pace in decades, as a wave of buy-backs is outpacing the amount of equity being raised – the implications are likely to be felt in Australia.
Our report also addresses the regulatory landscape and looks deeper into the Hong Kong and Singapore equity capital markets.