US markets are embracing international trade as investors seek stability in a post-Brexit, post-pandemic environment, writes Jason Paltrowitz, executive vice president, corporate services at OTC Markets Group.
June marked the five-year anniversary of the Brexit vote, a decision met with shock that spread rapidly across global financial markets. The outlook for the UK as an independent nation was unclear; jobs were at risk, currency values imploded, and speculation over London’s diminished role as a global financial hub was rife.
Fast forward to 2021, and certainty still feels a way off. Following the closure of the Brexit transition window in January, concerns remain over the UK’s future as a global financial centre.
All this against the backdrop of unprecedented market volatility on account of the Covid-19 pandemic.
Where European markets have arguably seen a weaker rebound, the US has remained resilient to the headwinds of political and economic change. In turn we have seen this help drive a strengthening connection between European companies and US investors, who will occupy a greater role in supplying the liquidity so highly sought-after to drive growth and opportunity across the Atlantic.
Casting back to 2016, we were already seeing the indicators that European perceptions of the US were as a bastion of stability. Following the announcement of a vote in favour of Brexit, trading volumes in US equities spiked to their highest level since 2011. On 24 June that year, some 14.9 billion shares changed hands. Then, in 2020, along came Covid.
The impact of the pandemic on financial markets has been widely catalogued. In particular, the growing retail phenomena has been well covered, as retail investors have become both more affluent and more active. On our own markets we have observed a decisive shift in the way US retail investors in particular are driving investment activity.
At the same time, the US is also recognising the value opportunity present in Europe, with markets not recovering, and growing, at the same ferocious pace as domestic stocks. In the UK, this is apparent from the volume of public company takeouts by US private equity – but they are not the only ones eying opportunity. We are seeing investors, both retail and institutional, increasing their appetite for international issuers and this, in turn, has opened the floodgates for an increasingly robust pipeline of US liquidity for European companies.
Exchanges across the US have been one beneficiary of this greater mobilisation of US retail capital. OTC Markets Group observed a 24% increase in average daily trading volumes in OTC securities with a primary listing on a European exchange in the first half of 2021 compared with December 2020 and a 13% increase in average daily dollar volume.
Corporate issuers globally are increasingly aware of the depth of US liquidity, and its ability to complement primary listings in the UK and Europe. The importance of this in growing their investor base, and ultimately the company itself, during times of market volatility, cannot be underestimated.
The outlook for investment is one of cautious optimism, however. In the US, the surge in Covid-19 cases has refocused mindsets to account for prolonged macroeconomic disruption, and likely further volatility. In Europe, Brexit seems to be occupying less headspace for investors, though if the last 18 months have taught us anything, it’s that markets can be turned upside down overnight.
For international companies, access to resilient and deeply-liquid markets such as in the US will be critical to their ability to withstand future volatility. US investors have gained an important seat at the table in the post-Brexit, post-pandemic investment world.
© 2021 funds europe
