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The World Federation of Exchanges (WFE), the global industry group for exchanges and central counterparties (CCPs), suggests market activity swiftly recovered from the pandemic in its 2020 market highlights report.
The COVID-19 pandemic, US presidential election, Brexit, the resignation of Japan’s prime minister Shinzo Abe, and increased tension between the US and China all created economic uncertainty last year.
In March 2020, market volatility levels were only comparable to those of the Great Financial Crisis of 2008.
WFE’s report focuses on the impact of the events of 2020 on markets holistically and looks across market capitalisation, listed companies, initial public offerings (IPOs), volumes and value traded in multiple assets classes including equities, derivatives futures, options and exchange-traded funds (ETFs).
Despite the uncertainty brought by the pandemic, there was an increase of 25.7 per cent in new listings through IPOs relative to 2019.
WFE says this highlights the role that exchanges play in funding the real economy, of particular importance during challenging times.
Compared with Q4 2019, the global number of IPOs in Q4 2020 also significantly increased (36.4 per cent). The average size of an IPO increased to $187.06 million (USD) from $171.93 million in 2019.
For equities, after a sharp drop of 20.7 per cent in Q1, domestic market capitalisation quickly recovered, reaching pre-pandemic levels in the following months, the report finds.
The report also identifies that in November 2020, markets added $10.90 trillion, surpassing the $100 trillion mark for the first time. At the end of 2020, market capitalisation was up by 19.7 per cent when compared to the end of 2019, reaching $109.21 trillion.
Looking at exchange-traded derivatives (ETDs), WFE identifies that derivatives trading rose for almost all contract types, and in all regions. Options trading increased more than futures trading.
Overall, in 2020, ETD volumes were up 43 per cent when compared with 2019, reaching a record of 46.28 billion contracts traded.
In 2020, ETDs saw significant increases in volumes, according to the report this was mainly in single stock futures (99.5 per cent) and ETF options (77.6 per cent), the former being driven by the Americas (1,202 per cent), in particular by B3-Brasil Bolsa Balcão.
WFE says the markets remained open and functioning, despite the exceptional circumstances and even during the worst days of the crisis, and after the peak in uncertainty observed in March, markets quickly recovered.
According to the report, by the end of July, most indicators registered a quick reversal to the activity levels seen before the pandemic, reflecting strong confidence in the markets and in their role in supporting the economy.
Towards the end of the year, WFE observes that the news of the development and approval of several COVID-19 vaccines, the final agreement between the UK and the EU, and the outcome of the US elections seemed to have boosted the confidence of investors and issuers, driving markets to end the year on a high note.
WFE CEO Nandini Sukumar comments: “These numbers reflect how exchanges have continued to play an active and fundamental role in supporting their underlying economies even during this unprecedented year.
"While 2021 will remain volatile, and much remains unknown about how and when we will find our way through the pandemic, public markets remain open for those who need them, stand ready to finance inclusive growth and support those who seek to mitigate risk."
Pedro Gurrola-Perez, head of research at the WFE, adds: “At a time when many economic indicators are struggling to overcome the impact of the 2020 events, it is encouraging to see how swiftly market activity has recovered, reflecting a strong confidence in the markets and reaffirming the importance of their role in rebuilding the economies.”
