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Why is the S&P 500® Relevant Globally?

S&P Global Platts

Energy: What to Watch in 2019

S&P Global Ratings

COP24 Special Edition Shining A Light On Climate Finance

S&P Global Ratings

S&P Global Ratings' Global Outlook 2019

S&P Dow Jones Indices

Considering the Risk from Future Carbon Prices

Why is the S&P 500® Relevant Globally?

The S&P 500 is a renowned benchmark for large-cap U.S. equities and is widely referenced as the gauge of U.S. equity performance. But what is the relevance of the U.S. market and the S&P 500 internationally?

1. When we talk about the U.S. market, just how big is it?

Jodie: The S&P 500 is the proxy for the U.S. market, and it represents about 80%-85% of the U.S. stock market. But from a global perspective, the U.S. is over one-half of the global stock market, as measured by the S&P Global BMI. This really matters because as the U.S. economy grows, it propels the stock markets of all other countries—and the U.S. stock market is largely driven by consumer spending. So really, the more a country exports to the U.S., the more sensitive it becomes to U.S. growth. For example, a country like Korea has a high sensitivity and on average, rises nearly 9.5% for every 1% of U.S. growth, whereas the UK only grows about 2.5%. So you can see the differences in impact per country.

2. In light of the importance of the U.S. market—proxied by the S&P 500—what’s the ecosystem around the S&P 500 itself?

Tim: That’s one of the important differentiating factors of the S&P 500. In most markets, S&P 500-based products will be among the most liquid, most traded, and most invested among all the other alternatives.

Part of that is because it’s not just about the benchmark itself, rather it’s about the availability of the different aspects that are available in a tradable format. We can mention futures, options, and the VIX®—if you were to pick one macro indicator that the rest of the world watches to gauge not just the U.S. but the global economic health, it would probably be the VIX, which is based on S&P 500 options. Then we have S&P 500 sectors, and smart beta or factors, such as momentum. An ecosystem has grown around the different investment aspects, pieces, segments, and characteristics of the S&P 500 over the many years since it was first launched in 1957. There’s a phenomenal wealth of not just data but also products that are internationally relevant.

3. Given the analysis and ecosystem, how do people use those to express their views about the U.S. economy or the U.S. market?

Jodie: There’s been tremendous growth in the indexing industry. Just recently, The Financial Times put out an article that said that there are nearly 3.2 million indices published every day, which trounces the number of stocks that are publicly available at 44,000. Of those indices, 43% are sectorbased, which is important because they give investors— whether they’re domestic or international—different ways to express their views through sectors. Different sectors in the U.S. have different levels of exposure to international revenues—for example, information technology has pretty high international revenues of about 60%, whereas real estate may only have 10%-15%. So whether an investor wants an exposure that’s very U.S.-centric or more global, measuring that with sensitivities to the U.S. dollar, interest rates, inflation, or U.S. growth with upside potential to these factors can help an investment strategy for today’s market participants.

Tim: At the risk of stating the obvious, here in the UK equity market, we can easily get exposures to the energy or financials sectors. However, if you want to get exposure to information technology in the UK, or in Europe more generally, it’s quite difficult. Many of the behemoths of the information technology sector and media industry are U.S.-based, and there are certain aspects of portfolio construction in terms of diversification that are almost impossible without reaching for the U.S. So naturally, there is international interest in not just the index itself, but in the different parts that could be used to diversify a domestic portfolio.

4. With the necessary biases that a domestic market has and therefore the relevance of U.S. market exposure plus the ecosystem, do you think this all feeds into why there’s so much research out there about the S&P 500 including the VIX and the index itself?

Tim: In a word, yes. I think that, as an index provider we are fortunate; as well as producing our own research, it’s often the case that if an academic researcher or a practitioner wishes to test a theory or examine a market dependency, the S&P 500 will often be used as either a benchmark or as the object of study in order to explore that. What that means for market participants is that there is a wide bank of research, commentary, and analysis that helps people understand what makes the S&P 500 tick.

Jodie: Again, the S&P 500 was launched in 1957, and at the time it represented the entire U.S. stock market. Today, it still represents about 85% of the U.S. stock market, and it serves as the foundation for much of the research available because it is used as the beta, and without beta, you don’t have any smart beta or any of the other developments that have occurred. So from the S&P 500, a number of different indices have been developed—such as equal weight, different sizes, styles, and other factors such as quality, momentum, value, ESG, and strategies that are well beyond what the original beta ever was.

To see the original interview watch: Understanding the Global Impact of the S&P 500.

Energy: What to Watch in 2019


S&P Global Platts Analytics Issues Two Special Reports

Pricing across the global energy markets will face headwinds in 2019, with a weaker and more uncertain macroeconomic framework deflating price formation in general, according to two special reports just issued by S&P Global Platts Analytics. Such headwinds will require the industry and portfolio managers to take a big-picture approach.

See the Executive Summary of the S&P Global Platts Analytics special report 2018 Review and 2019 here. Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here.

"One of the key lessons learned in 2018, painfully by some, is that market sentiment can shift violently without much change in fundamentals, requiring a steady, holistic perspective," said Chris Midgley, global head of analytics, S&P Global Platts. "It is clear that this volatility will remain a feature across the energy markets in 2019, particularly as IMO 2020 nears."

Particularly blustery headwinds are in store for markets where prices finished 2018 at elevated levels, and well above costs, such as North American natural gas and global coal. However, if the supply side can adjust to the reality of slowing demand growth, energy prices can find support. For natural gas liquids (NGLs), the ongoing logistical constraints at the US Gulf Coast are likely to manifest on continued price volatility, particularly for ethane and liquid petroleum gas (LPG), over the next year despite strong global demand.

LPG, such as propane and butane and used in transportation fuel, refrigeration, heating and cooking, is rapidly facing US export capacity constraints, especially along the US Gulf Coast. For LPG feedstock propylene, there is clear potential for high volatility globally over the next 12-18 months.

Analysts at S&P Global Platts see weakening prices of Henry Hub natural gas. The slowdown in US demand growth will exceed that of supply. But if winter temperatures prove to be colder than normal, near-term prices will need to move higher to bring on enough supply to replenish depleted storage levels.

For global liquefied natural gas (LNG), it will be end-user-backed LNG demand that faces particular struggle to cope with the speed and force of new supply entering the market in 2019. Non price-responsive demand in Asia will be easily met and JKM spot physical prices (reflecting LNG as delivered into Japan, Korea and China) will sag next year.

Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here. Among the 22 key take-away themes:

  • NGL supply growth will strain the North American energy system
  • Saudi Arabia will need to be nimble to balance 2019 oil supply
  • US oil supply limited by pipelines
  • Oil demand slowing: trade war, industrial slump
  • 2019 LNG supply additions largest since the Qatari mega-trains
  • US gas supply growth to exceed demand growth even with LNG exports
  • Global solar growth slowing
  • Shipping disruption looming - IMO 2020
  • New Russian gas pipeline advantage over Ukraine
  • US coal demand to decline again in 2019
  • Growth in new refineries and complex capacity likely to weigh on refinery margins especially in Asia

Year 2019 will certainly be one of transition for crude and refined oil products as it will lead into 2020 when roughly three million barrels per day of high-sulfur fuel oil must be “destroyed” (including enhanced usage of HSFO in power generation) due to the International Marine Organization (IMO) mandate of eco-friendly shipping fuels in use at sea. A similar amount of middle distillate/low sulfur fuel must be created (by refinery changes and by running more crude oil. The increase in refinery capacity between now and 2020 is large, but mostly needed to cover normal demand growth. Expect prices of light sweet crudes to be bid up in 4Q19.

COP24 Special Edition Shining A Light On Climate Finance


− Green loans are evolving, with the Climate Bond Initiative forecasting nearly $1 trillion in green bond issuance by 2020.

− Despite the uptick in green bond and loan issuance, the market still remains relatively small, especially compared to the universe of assets comprising CLO 2.0 transactions.

− In our view, a green CLO market has large growth potential, boosted by regulatory initiatives and emerging interest from both issuers and investors in 2018.

− We built a hypothetical rating scenario for a green CLO to compare and contrast the underlying portfolio and structure with a typical European CLO 2.0 transaction.

− Our hypothetical green CLO analysis showed that green loans may have different fundamental characteristics to corporate loans, such as lower asset yields, higher credit quality, and higher recovery rates assumptions.

The global collateralized loan obligation (CLO) market has experienced a rebirth (2010 in the U.S. and 2013 in Europe). New issuance continues to increase due to investor familiarity with the product, as well as low historical default rates. While a market for green assets, such as green loans and bonds has been established for a while, although still of a relative size, a sustainable securitization market is still in its infancy. Considering the challenge in financing the amounts, S&P Global Ratings expects green CLOs to play a role in increasing the private sector presence in the sustainable finance market.

Following the Paris Agreement that came into force in November 2016, 184 parties have ratified the action plan to limit global warming. For this purpose, developed nations have pledged to provide $100 billion (about €87 billion) annually until 2025. As part of this deal the EU has committed to decrease carbon emissions by 40% by 2030. In March 2018 the European Commission (EC) proposed the creation of environmental, social, and corporate governance 'taxonomy', regulating sustainable finance product disclosures, as well as introducing the 'green supporting factor' in the EU prudential rules for banks and insurance companies.

Read the Full Report

S&P Global Ratings' Global Outlook 2019

 A deep dive into S&P Global Ratings’ insights on the credit outlook for 2019 and what are the risks and vulnerabilities to look out for.

Access all the Global Outlook
Read More

Considering the Risk from Future Carbon Prices

Along with the advent of the 2015 Paris Climate Agreement has come a growing understanding of the structural changes required across the global economy to shift to low- (or zero-) carbon, sustainable business practices.

The increasing regulation of carbon emissions through taxes, emissions trading schemes, and fossil fuel extraction fees is expected to feature prominently in global efforts to address climate change. Carbon prices are already implemented in 40 countries and 20 cities and regions. Average carbon prices could increase more than sevenfold to USD 120 per metric ton by 2030, as regulations aim to limit the average global temperature increase to 2 degrees Celsius, in accordance with the Paris Agreement.

S&P Dow Jones Indices launched the S&P Carbon Price Risk Adjusted Indices to embed future carbon price risk into today’s index constituents.

Read the Full Report