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Presentation Equity Markets Remco Lenterman

Presentation Equity Markets Remco Lenterman. Goldman Sachs International May 2002. 2. Why do companies issue shares?. 3. 4. 5. 6. Why invest in Equity?. Maturity of the Equity Markets. The Role of the Intermediary. The Role of the Regulator. Agenda. The concept of Equity. 1.

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Presentation Equity Markets Remco Lenterman

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  1. Presentation Equity Markets Remco Lenterman Goldman Sachs International May 2002

  2. 2 Why do companies issue shares? 3 4 5 6 Why invest in Equity? Maturity of the Equity Markets The Role of the Intermediary The Role of the Regulator Agenda The concept of Equity 1

  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

  4. Agenda The concept of Equity 1 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

  5. Claim on profits The concept of Equity Bank loans Long-term debt Subordinated debt Equity

  6. Agenda The concept of Equity 1 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

  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

  8. Equity Market EnvironmentEquity issuance volumes in Europe (in E mn) Amount E mn Year Source: Dealogic Bondware. Excluding preference shares, units, rights and funds. Including domestic shares. Amount for 2002 is YTD.

  9. Equity Market Environment Global Equity Issuance ($bn) by region $490 $419 $319 $320 $285 $266 Source: Euromoney Bondware, SDC

  10. Agenda The concept of Equity 1 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

  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

  12. Agenda The concept of Equity 1 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

  13. Absolute Size (Market Cap of broadest Index in €trn) Absolute Size (Market Cap of broadest Index in €trn) Absolute Size (Market Cap of broadest Index in €trn) Relative Size as Multiple of GDP Relative Size as Multiple of GDP Relative Size as Multiple of GDP Maturity of the Equity Markets Absolute Size (Market Cap of broadest Index in Euro trn) Relative Size as Multiple of GDP Market cap (E trn) Market cap / GDP countries countries

  14. Absolute Size (Market Cap of broadest Index in €trn) Absolute Size (Market Cap of broadest Index in €trn) Absolute Size (Market Cap of broadest Index in €trn) Relative Size as Multiple of GDP Relative Size as Multiple of GDP Relative Size as Multiple of GDP Maturity of the Equity Markets Size of pension and insurance markets in Europe as a % of GDP Allocation to equities by pension funds in Europe % Notes: Pension figures as of June 2000, Insurance figures as of December 1999 Notes: Datas as of June 2000

  15. Agenda The concept of Equity 1 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

  16. The Role of the Intermediary CORPORATE ADVISORY INVESTMENT ADVISORY CAPITAL / LIQUIDITY / EXECUTION ADVISORY

  17. Typical Investor / Intermediary relationship Portfolio Management Trading Desk - - Investor - - In-house research Research Sales Sales-Traders Traders - - Intermediary - - Investment advisory Execution advisory & Liquidity Execution Advice Liquidity

  18. Why Liquidity is important • Immediacy provided to clients Depth of the order book in TOP 10 stocks (in Euro):

  19. Agenda The concept of Equity 1 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

  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

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