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The GlobalCapital Podcast

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A weekly podcast from GlobalCapital discussing the most interesting stories from the world’s capital markets
20 Episodes
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Turkey has once again defied monetary policy orthodoxy by cutting interest rates in a bid to tackle inflation, which is running at around 20%. The results on the country’s currency, the lira, have not been pretty and it has plummeted in value. But what does that mean for the country’s access to capital markets? This is, after all, a sovereign borrower with a big presence in bond markets and the country’s banks and companies also rely on international funding.  We discuss why the reaction to the interest rate cut in the bond market was muted but highlight the risks that loom large for Turkey’s capital markets. Meanwhile, the self-styled “CEO of El Salvador — its president Nayib Bukele — is attempting what might generously be called a novel form of sovereign financing. He wants to issue a $1bn bond that pays out based on the performance of Bitcoin. And he wants to use some of the proceeds to build a new city… called Bitcoin City… at the foot of a volcano… We deliberate over whether this is a good deal for investors or not (spoiler alert: we don’t think it is) and what Bukele might be up to. We also discuss the latest findings from our survey about life in the capital markets after Covid and how it has affected banks’ attitudes to diversity.
The way people did business and went about their work in the capital markets changed almost overnight in early 2020 with the advent of the coronavirus pandemic — and in ways many would have previously thought impossible. Gone were the gruelling roadshows and short haul business trips as deal marketing went online. Gone too was the need to be present in the office or on the trading floor. Compliance and technological worries were swiftly overcome and record volumes of capital markets business were done despite the chaos that the pandemic brought.Now, as working conditions normalise, it is time for the industry to assess what it will keep from the pandemic experience and what it has missed the most from before. Many bankers have long since resumed normal office working but many expect — and are being given — a greater degree of flexibility. But how much flexibility is the right amount?Ultimately, capital markets are about relationships. How will building and managing those change now there is a clear expectation that there will be less business travel in the future?We discuss the findings of the survey and what will the lasting changes be to working life in the capital markets.
If the COP 26 conference on climate, which concludes this week in Glasgow, has had a consistent theme, it has been trying to agree how much funding the developing world needs from the rich one to combat the most severe consequences of climate change, and how to make sure that funding  gets there.In this week’s podcast we examine some of the smart and innovative ways capital markets can help bring about climate adaptation in the developing world, and how institutions like development banks can help to mobilise the billions — perhaps trillions — of dollars necessary to prevent a global catastrophe from both public and private purses. Like some kind of location scout for a Bond film, we start in the coral reefs of Belize and move to Washington DC’s corridors of global power before considering which other exotic but threatened countries can benefit from global capital flows looking to have a positive impact on the developing world and climate change.
It’s half time in Glasgow at the COP 26 conference where the world has gathered to thrash out the next steps in the fight against climate change. GlobalCapital, which has been reporting from the front lines of ESG finance since the concept’s inception, has boots on the ground at the event (and not on the other side of Scotland, like CNN) while we have also been involved in a special collaborative project with our sister publications in the Euromoney Institutional Investor stable to bring you — completely free — the most important news, analysis and opinion from the capital markets; banking and finance; and the legal, insurance and tax sectors among others around the latest developments in Glasgow and from the wider green transition (go to euromoney.com/COP26 for more). On the podcast this week, we discuss the GFanz initiative — Mark Carney’s $130tr plan to fund the green transition — and what it can and can’t achieve. We examine the UK’s plans to force companies to consider their path to net zero and we look into one of the biggest problems facing COP 26: funding the developing world through the climate crisis. Finally, we take a look at what the second week of COP 26 holds in store.
With record amounts of issuance in the equity capital markets, dealers and issuers have become increasingly reliant upon cornerstone investors to ensure their deals get done. A cornerstone investor — one that commits to a large chunk of stock in an IPO before book building begins in exchange for a full allocation of shares — should bring several benefits to a new listing by removing some of the underwriting risk, encouraging other investors to join the deal and in some cases helping the stock to perform once it has been priced. But many market participants have complained that you can have too much of a good thing. Plenty of IPOs are being cancelled, postponed or are bombing in the secondary market regardless of cornerstone participation. Yet that is causing bookrunners to sign up ever more cornerstones in deals where they previously would not have been required. This, the critics say, prevents true price discovery, makes stocks illiquid and is inherently unfair, among other bellyaches. On this week’s podcast, we discuss the extent of the problem, what can be done about it and what sort of deals need and could do without cornerstone buyers.
Will capital markets convert to using blockchain-based systems? Will digital currencies replace conventional ones? These questions have been in the air for a long time, but the uncertainty is fading. Increasingly, it looks like the answer to both will be yes. Two experiments this week bring those prospects nearer. SG’s Forge subsidiary has begun a repo transaction on tokenised covered bonds, conducted wholly on the blockchain. And Euroclear and the Banque de France have been war-gaming a whole range of transaction types.Meanwhile, the meteoric growth in stablecoins means they are becoming some of the largest owners of short term securities, such as commercial paper and government bills. Fitch thinks they could overtake conventional money market funds in the CP market. Is this a good idea, given their unregulated nature and history of faux pas? Listen to our podcast for an update from the digital front line from Lewis McLellan, Bill Thornhill and Frank Jackman.
Energy suppliers and customers are facing mounting costs thanks to the rocketing price of gas. Heavy demand, particularly from China, combined with low storage in Europe has meant scarcity, which has driven up prices. In the UK, where residential energy customers benefit from a price cap, many smaller energy suppliers have gone out of business finding themselves unable to pass on rising prices to end customers. These seemingly unprofitable end customers have now been passed to the big suppliers — those big enough to rely upon capital markets for funding. This week, GlobalCapital looks at what that means in capital markets both for the big energy suppliers and what it tells us about something everyone in financial markets is thinking about: the future path of inflation.
The ECB: post-Pepp steps

The ECB: post-Pepp steps

2021-10-0818:291

The ECB’s Pandemic Emergency Purchase Programme (Pepp) is set to end in March. It has been spectacularly successful in suppressing European government bond spreads at a time when those sovereigns have had to raise more money than ever to fund their way out of the pandemic. Naturally, the looming deadline has market players worried about what will happen to the yields of countries such as Spain, Italy and Greece. The ECB this week appeared to leak a proposal for what comes next. On the podcast this week, we discuss the merits not just of that plan but of the timing of the messaging, which came right in the middle of a volatile period for bond markets and rising yields. Is the message now more important than the policy?Keeping with European sovereigns and the pandemic, we also discuss the latest move in Poland’s ruck with the EU over the precedence of the rule of law and whether the country will see any of the billions in EU funding it is hoping for and what that might mean for bond markets.
Equity markets have been on a tear since an initial tumble when the coronavirus pandemic began. Lashings of central bank support for markets, optimism over the recovery, emergency balance sheet repair and issuers and sellers taking advantage of rocketing valuations have kept developed market valuations climbing. It has become a very crowded trade, with investors bemoaning the amount of work they are being asked to do to keep up just to pay top-end prices.But there may better opportunities in emerging market equities. Famous investor Jeremy Grantham of GMO picked the asset class as one to watch at the start of the year. In truth, performance has been mixed since then across different emerging markets. But some, such as Russia, are booming with stellar index performance and plenty of supply. We look at what is driving the surge and what opportunities it may present.
Capital markets around the world had to get up to speed quickly last week with Evergrande, the huge Chinese property developer teetering on the brink of default on $20bn of dollar bonds and some $280bn of other liabilities including renminbi bonds. In this week’s GlobalCapital podcast, GC Asia editor Rashmi Kumar and Latin American bonds reporter Olly West explore the possible outcomes, including a shock to China’s ultra-important property sector, to confidence in the Chinese financial system, and possibly to appetite for emerging market debt around the world.
The twin influences of the pandemic and the EU continue to form the size and shape of its biggest bond market — that for government debt.There are signs that the spike in bond issuance driven by the pandemic will start to fall now the recovery is underway. But it’s not all about supply and demand with public debt such a hot political issue within the EU.As the pandemic took its toll, the more frugally minded member states had to pause their demands for fiscal prudence. They’re back on the case now — with one very large, notable exception — and are pushing for what they argue will be a more responsible approach to borrowing and spending.On this week’s podcast we ask how that and other political spats across the EU from west to east are dictating the path of the government bond market.
Every constituent of the capital markets is eager to be seen considering the environmental, social and governance impact of their activities. The private equity industry is no exception. But while it may well be able to screen what it buys as far as the E and G of the ESG trinity are concerned, it sometimes struggles with the S. That’s because the consequences of a PE buyout of a company are often job losses and lower benefits for the least well off workers. Does that mean that the PE business model is antithetical to socially responsible investing? Or are the buyout barons doing society good by improving the assets they own? And how can they better manage their impact — something that will surely be a business advantage while socially responsibility is such a priority in capital markets?
A surge in capital markets business following the pandemic has caused a bidding war for junior bankers – those in the first few years of their careers, who can execute deals, if not necessarily run a business yet. At the same time, investment banking is no longer the tallest tree in the career forest for the ambitious. Banks must now compete with all sorts of other employers for the best and brightest. The result has been a rush to get enough bankers in through the door to cope with business. That means soaring pay for bankers at the start of their careers but where will it all lead? And what happens once the dealflow dries up?
For a market so well supported by central bank bond buying, there have been some strange dynamics at play in European corporate debt of late. In some corners of the market, deals have struggled and yet just this week a borrower brought a deal in the sort of size you would normally expect to see in a busy September, not while everyone is supposed to be at the beach in August. The monster order books of just a few months ago seem to be a thing of the past and yet businesses pummelled by the pandemic are printing bonds with record low coupons. What is going on and what does it mean for when the market gets busy again in the autumn?
Across the world’s financial centres, summer interns and graduate trainees are taking their first steps in investment banking. This year too, one bank has welcomed school leaver apprentices to its front office for the first time. There is no doubt that that marks a huge change in how banks recruit junior staff, which for years has been defined by hot pursuit of those with elite academic credentials. But has the jobs market changed? Is investment banking still the draw it was or are those embarking on their careers today after something more than a big income and a storied City or Wall Street name on their CVs? And are the banks themselves looking beyond their traditional hunting grounds for the next generation of MDs, rain makers and masters of the universe?
Despite a lot of excitable talk about the tapering of central bank asset purchases around the world earlier in the year, the ECB this week gave the capital markets a clear indication that the direction of its monetary policy would remain extremely loose. The Frankfurt-based institution has tweaked not only its inflation target but its forward guidance, which outlines how it plans to achieve this. We discuss what that means for borrowers and investors in  the capital markets.
The direct lending market in Europe, where funds lend directly to companies rather than through a bank intermediary, has blossomed over the last decade or so, giving businesses that typically cannot issue bonds access to an alternative source of capital to bank funding, which itself has not always been easy to come by. Direct lenders, for their part, have attracted investment from all manner of institutional investors looking for juicier returns than they can find in public markets, while offering the companies they lend to a deep, long-term lending relationship. But with yields vanishing across capital markets, just how are direct lenders maintaining returns and are their end investors paying enough attention to the risks they are taking on?
Both the ECB and the European Commission this week revealed plans to influence and direct the path of the booming sustainable finance markets. The central bank has made fighting climate change a central part of its monetary policy thinking, while the Commission wants to tackle a wide range of sustainable finance activity from regulating ESG themed issuance, to ratings agencies and more besides. But is more regulation helpful or a hindrance? Will the measures proposed make much difference? And will they happen quickly enough?
The EU has made a strong start to funding its €800bn Next Generation EU programme in the bond market. It will be printing an awful lot of bonds over the next few years, way beyond what a supranational would usually issue and bringing the sort of volume more typical of a sovereign borrower. It is only supposed to be a temporary measure to fund the pandemic recovery but now people are wondering if the EU shouldn’t issue of this sort of volume permanently, becoming the eurozone’s safe asset in the process. This week GlobalCapital discusses whether that is likely, necessary, or desirable and what the implications might be.
The demand for sustainable finance has exploded in the last few years. It is a hotbed of innovation as debt issuers look to make the most of investors’ desire to fund a better world. This week GlobalCapital considers one of the most recent innovations: sustainability-linked debt. The format is simple; a borrower pays more or less on its debt depending on whether it meets certain sustainability targets. But two deals this week highlighted some of the controversies this nascent market faces over its credibility.
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