Hunkering down in uncertain times

The primary task of an investor is to make capital grow, no matter the circumstances. When times are uncertain, they crave the information needed to make sure they're making sound decisions and minimising risks. In our latest Capital Market survey, three areas stood out as having largely increased in importance: debt, shareholder, and governance information.

The unpredictable swaying of capital markets is all a part of navigating towards sound decisions. And when the swaying becomes volatile, such as last year ending with a stock market dip, risk is traded in for stability. This is compounded by complications arising from Brexit and its impact on growth in the eurozone and the rising interest rates in the U.S. In turn, this affects investor behaviour, as we can see from the data collected during our capital market survey.

Changing interest rates turn attention to debt

When interest rates rise, its natural for investors to look at what is often the most affected aspect of a company's financials: debt. Minimising risk is of the utmost importance for investors and key debt ratios - combined with loan portfolios and credit ratings - is a good way of measuring that risk in times of uncertainty. We’ve been keeping an eye on this information for a while now, having started surveying debt ratios and loan portfolios in 2010 and credit ratings in 2012, and it has never been as sought after as it is now.

Average importance of key debt ratios, loan portfolio and credit ratings since 2010:

(1 = Not important at all, 5 = Very important)

Buckle up with the safety of bonds

In the spirit of minimising risk, capital market professionals look for safer options in times of turbulence. If shares are subject to a potential drop in value in the near future, a natural choice is to opt for bonds. Bonds are considered a safer option, as they generally have more stable payouts and bondholders are generally paid first in the case of bankruptcy. As was the case for debt, information about a company's bonds has never been as high in demand as it is now.

Average importance of corporate bonds since 2012:

(1 = Not important at all, 5 = Very important)

To sell or not to sell

Shareholder information is invaluable when it comes to making sound decisions. While this covers many aspects, we've seen an increase in the demand for details on share capital development and major shareholders. This was also mentioned by all of our capital market interviewees; they want to understand what might happen with share capital in the future and use historic track records as a reference point. Knowing who owns shares can also act as an indicator of whether the share is a sound investment or not - if a good investor is on board, others might want to join in.

Average importance of share capital development and major shareholders since 2015:

(1 = Not important at all, 5 = Very important)

Making sure dividends are paid

Another aspect of minimising earnings risks is making sure dividends are in line with the investment analysis. It's all a natural part of the capital market professionals’ primary task: capital growth. As was the case above, information about the dividend policy history has never been as sought after as it is now.

Average importance of dividend history and dividend policy since 2015:

(1 = Not important at all, 5 = Very important)

Show who runs the company

To make sure a sound investment decision has been made, investors look to the board of directors. Clearly shown in the data from our survey, as well as through our interviews, is the fact that board composition and previous experience matters a lot – and this importance is only increasing!

Besides the board of directors, documentation from annual general meetings (AGMs) and insider information has seen a big increase in relevance.

Average importance of information about AGM, the board of directors and insiders since 2015:

(1 = Not important at all, 5 = Very important)

Judging from the numbers presented, the capital market is anxious and looking for stability. Making sure that information on debt, shares and governance is available is more important than ever.

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