2 Dec 2015

AFME calls for better functioning equity markets in Europe

AFME today issues a report highlighting the need for Europe to make greater use of its equity markets. “Why equity markets matter” finds that European equity markets remain under-developed, weakening the region’s economic potential, and urges policymakers to remove unintended liquidity restrictions in current regulatory proposals to foster a European equity culture.

Simon Lewis, Chief Executive of AFME, said: “This is an opportune time to highlight the benefits of equity markets in Europe. The Commission has set out its plan for a Capital Markets Union (CMU) with a view to further developing and integrating capital markets to generate economic growth. We hope our report will help ensure that equity fulfils its potential as a critical source of capital.”

AFME’s report concludes that the European Commission should create incentives for an equity culture in Europe in the context of the CMU, address the risks to equity markets in current regulatory proposals, and encourage greater integration of European markets.

Richard Semark, Managing Director, Head of Client Execution Strategy and UBS Multilateral Trading Facility, said: “This report is a very timely reminder that a well-functioning equity market is crucial to the European economy. However, this fact is sometimes overlooked or forgotten by policy makers among their many other objectives.”

European equity markets are not being used to their full potential in funding economic growth. For example, in Q1 2015, US equity market capitalisation represented 159% of GDP, whereas Europe’s was just 73.3%. If Europe’s market capitalisation-to-GDP ratio increased to 100% this could provide a capital boost to European companies of at least EUR 3.5 trillion.

The AFME report explores the potential benefits of European equity markets, including not only their provision of funding for high growth sectors, but also long-term investment returns necessary to help fill the pension shortfall.

Potential for growth, jobs and investor returns

Growth in the European economy remains subdued and unemployment stubbornly high. However, the outlook appears to be brightening with the European Commission forecasting real GDP growth in the European Union of 1.8% in 2015 and 2.1% in 2016. Behind these figures stand European companies and employers striving to grow their businesses and create more jobs. Yet in order to return economic growth to a strong and stable footing, European companies need to make full use of all available funding options.

The report is the first in a three-part series. The second report will address barriers to preventing equity markets from playing a greater part in funding business and the third will look at how to overcome these barriers.

AFME’s many equities-focused committees actively support growth in market efficiency, functioning, listings and SME-focused equity raising initiatives.

The report is free to download from AFME’s website

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