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Presentation
Equity Markets
Remco Lenterman
Goldman Sachs International
May 2002
07/07/2015 07:53
Slide 2
Agenda
1
The concept of Equity
2
Why do companies issue shares?
3
Why invest in Equity?
4
Maturity of the Equity Markets
5
The Role of the Intermediary
6
The Role of the Regulator
07/07/2015 07:53
Slide 3
A Tale of Tulips…
 1630 in Holland: Tulips are considered an investment by the population
 1636: “Tulipomania”
Tulips are traded with a rage that spreads to all classes of the society
 1637: Speculation begins…
Bulbs are sold faster than they can grow
In March, Francois Koster pays DFL 6650 for a few dozen tulips
Fortunes are made all over the country
 Market collapses on the rumour that the tulips are worthless…
Panic seizes the market
In May 1637, Tulip prices collapse by 99% of the price they traded at
two months earlier
07/07/2015 07:53
Slide 4
Agenda
1
The concept of Equity
2
Why do companies issue shares?
3
Why invest in Equity?
4
Maturity of the Equity Markets
5
The Role of the Intermediary
6
The Role of the Regulator
07/07/2015 07:53
Slide 5
The concept of Equity
Bank loans
Long-term debt
Subordinated debt
Equity
 Claim on profits
07/07/2015 07:53
Slide 6
Agenda
1
The concept of Equity
2
Why do companies issue shares?
3
Why invest in Equity?
4
Maturity of the Equity Markets
5
The Role of the Intermediary
6
The Role of the Regulator
07/07/2015 07:53
Slide 7
Why do companies issue shares?
To Raise Capital
To Improve the Profile and Visibility of the Company
To Create Currency for Strategic Growth via Acquisition
Employee Incentives
To Create Long-Term Exit Strategy for Shareholders if they wish to sell
07/07/2015 07:53
Slide 8
Equity Market Environment
Equity issuance volumes in Europe (in E mn)
Amount
E mn
300,000
Privatisation
Corporate
253,661
250,000
192,364
200,000
82%
150,000
128,834
131,325
74%
100,000
115,002
88,975
64%
68%
65,857
91%
54,375
50,000
41,196
6,778 81%7,301 83%
44%
19%
17%
1990
1991
0
1992
1993
30,758
69%
56%
2,460
67%
65%
36%
35%
31%
1994
1995
33%
32%
26%
18%
86%
9%
1996
1997
1998
1999
2000
2001
14%
2002
Year
Source: Dealogic Bondware. Excluding preference shares, units, rights and funds. Including domestic shares. Amount for 2002 is YTD.
07/07/2015 07:53
Slide 9
Equity Market Environment
Global Equity Issuance ($bn) by region
US
Europe
Asia
$490
$419
$52
$46
$319
$266
$39
$25
$92
$124
$16
$230
$194
$21
$110
$138
$149
$156
$131
1996
1997
1998
Source: Euromoney Bondware, SDC
$320
$285
$179
$208
$189
1999
2000
2001
07/07/2015 07:53
Slide 10
Agenda
1
The concept of Equity
2
Why do companies issue shares?
3
Why invest in Equity?
4
Maturity of the Equity Markets
5
The Role of the Intermediary
6
The Role of the Regulator
07/07/2015 07:53
Slide 11
Why invest in Equity?
Long-term and short-term return Equity/Fixed Income ratios
 A hypothetical $100 invested in the Dow Jones in 1928 would have
been worth over a $1mn in 2001
 A hypothetical $100 invested in the Dow Jones in 1999 would have
been worth $91 in 2001
 A hypothetical $100 invested in the US Treasury Bonds in 1928 would
have been worth $4,170 in 2001
 A hypothetical $100 invested in the US Treasury Bonds in 1999 would
have been worth $142 in 2001
07/07/2015 07:53
Slide 12
Agenda
1
The concept of Equity
2
Why do companies issue shares?
3
Why invest in Equity?
4
Maturity of the Equity Markets
5
The Role of the Intermediary
6
The Role of the Regulator
07/07/2015 07:53
Slide 13
Maturity of the Equity Markets
Absolute Size (Market Cap of broadest Index in Euro trn)
Market cap (E trn)
Market cap / GDP
Market Cap (€trn)
18
16
Relative Size as Multiple of GDP
1.8
16.
4
Mcap/GDP
1.6
1.5
1.5
14
1.4
12
1.2
10
1
8
0.8
6
0.6
4
0.4
0.8
0.6
2.7
0.5
2.4
2
1.2
0.2
1.0
0.3
0
0.0
0
US
Japan
UK
France
Germany
China
countries
US
Japan
UK
France
Germany
China
countries
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Slide 14
Maturity of the Equity Markets
60
60
40
40
20
20
0
0
LAN
D
NET
HER
SWIT
GER
FRA
N
Notes: Pension figures as of June 2000, Insurance figures as of December 1999
Notes: Datas as of June 2000
S
80
LAN
D
80
N ET
HER
100
2000
ZER
LAN
D
100
S
120
ZER
LAN
D
120
UK
140
MAN
Y
140
1993
SWIT
160
UK
Insurance
MAN
Y
180
GER
160
CE
%
Pension
CE
180
Allocation to equities by pension funds in Europe
FRA
N
Size of pension and insurance markets in Europe as a % of GDP
07/07/2015 07:53
Slide 15
Agenda
1
The concept of Equity
2
Why do companies issue shares?
3
Why invest in Equity?
4
Maturity of the Equity Markets
5
The Role of the Intermediary
6
The Role of the Regulator
07/07/2015 07:53
Slide 16
The Role of the Intermediary
CORPORATE ADVISORY
INVESTMENT ADVISORY
CAPITAL / LIQUIDITY / EXECUTION ADVISORY
07/07/2015 07:53
Slide 17
Typical Investor / Intermediary
relationship
- - Investor - -
Portfolio Management
Trading Desk
In-house
research
- - Intermediary - - Research
Sales
Sales-Traders
Investment
advisory
Traders
Execution advisory
& Liquidity
Execution
Advice
Liquidity
07/07/2015 07:53
Slide 18
Why Liquidity is important
 Immediacy provided to clients
Depth of the order book in TOP 10 stocks (in Euro):
TOP 10
Vodafone
BID
OFFER
Typical institution
order size
1,500,000
800,000
E 20mn
Nokia
400,000
400,000
E 20mn
Siemens
300,000
300,000
E 15 mn
BP
480,000
400,000
E 15 mn
Telefonica
350,000
350,000
E 15 mn
TotalFinaElf
400,000
150,000
E 15 mn
Ericsson
600,000
600,000
E 15 mn
Glaxosmithkline
800,000
400,000
E 15 mn
1,500,000
250,000
E 15 mn
350,000
52,000
E 15 mn
Royal Dutch
Petroleum
Deutsche Telekom
07/07/2015 07:53
Slide 19
Agenda
1
The concept of Equity
2
Why do companies issue shares?
3
Why invest in Equity?
4
Maturity of the Equity Markets
5
The Role of the Intermediary
6
The Role of the Regulator
07/07/2015 07:53
Slide 20
The Role of the Regulator
To Preserve Integrity of the market
To Ensure Transparency
To Protect Investors
To Maintain Confidence in the Financial System