Date: 24th May 2023
Author: BETTER FINANCE
Type: Research papers
BETTER FINANCE released its updated report on the progress of the European Capital Markets Union (CMU), and the results are discouraging. The report analyses the first five key performance indicators (KPIs) used to assess the progress of the CMU, and adds two additional KPIs to reflect developments in EU capital markets. The report is based on the objectives and actions under the 2020 CMU Action Plan proposed by the European Commission and the objectives for the EU Strategy for Retail Investors.
- KPI 1, which measures the funding capacity of EU capital markets versus that of the banking sector, recorded negative evolution up to 2021. This is a stark contrast to the slight progress recorded in the 2019 report. Despite a “retail” investing surge observed throughout 2020-2021, the situation did not further improve. BETTER FINANCE notes that the funding capacity of EU capital markets deteriorated while reliance on the banking sector increased.
- KPI 2, which measures the participation of small and medium-sized enterprises (SMEs) in capital markets, showed good progress. BETTER FINANCE notes that, with a few exceptions, the number of IPOs and the total value of funds raised on capital markets has grown significantly since 2015 by the end of 2021.
- KPI 3, which measures the structure of EU households’ financial savings, recorded a status quo. Despite a new, significant wave of previously inactive investors arriving to EU capital markets during the two years of pandemic, BETTER FINANCE noted that the structure of EU households’ financial savings has not improved as envisaged by the CMU Action Plan. Non-professional investors still keep most of their savings in banking or packaged investment products, a trend that has not changed since 2012.
- KPI 4, which aims to revive the European equity investing culture, showed negative evolution. While the CMU aimed to revive an equity culture in the EU in order to promote long-term and sustainable growth, the report notes that reviving the European equity investing culture has not been a priority for policy action and regulatory reform. BETTER FINANCE notes that EU households collectively remain a modest, small shareholder of the European economy, as most listed equity remains on the balance sheets of financial corporations.
- KPI 5, which measures capital market returns for retail investors, showed negative evolution. The report analysed all returns on capital market investments obtained by EU households and complemented the data with some key information on banking products as well. The results showed that investment funds generally perform better than insurance-based products, although these makeup for a share three times smaller in the financial balance sheets of EU households. The report notes that pension products mostly underperform the EU capital markets benchmark, a 50-50% all European equity and bond index.
Overall, the report highlights the lack of progress on the CMU, despite the efforts made to establish it. The report notes that more needs to be done to build the CMU and to ensure that it works for people.