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S&P Global — 22 Aug, 2022 — Global

Daily Update: August 22, 2022

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By S&P Global

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

The Green Bond Market Goes Global

The City of Groton lies along the Atlantic coast in southeastern Connecticut. It holds no particular distinction, beyond being the home of General Dynamics, which builds submarines for the U.S. Navy. Recently, Groton proposed to raise $28.2 million through a green bond, the net proceeds of which would be used to finance green infrastructure projects such as water distribution and wastewater treatment. But even this proposal to fund critical infrastructure through the issuance of a green bond is not particularly distinctive. These days, green bonds have become almost common.

A green bond is a type of debt security used to raise money for environmental projects, and it often carries a tax benefit for the bondholder. Inflation, the fear of recession and geopolitical issues are believed to be responsible for a dip in the issuance of green bonds in 2022. The global issuance of green bonds reached $111.63 billion in the second quarter, compared to $135.41 billion during the prior-year quarter. S&P Global Market Intelligence suggests that green bond issuance will pick up across regions once economic and market conditions are more stable.

In Asia-Pacific, the issuance of green bonds reached a high-water mark, with China leading the charge. A total of $39.15 billion of green bonds were issued in the second quarter, up from $29.44 billion in the same period of 2021. Much of the growth was due to an update to China’s green bond taxonomy, which aligned the country’s standards with those of international markets, and the comparatively higher yields of Chinese green debt.

India has not been as active as China in the green bond market despite Prime Minister Narendra Modi announcing in November 2021 that India had committed to net-zero emissions by 2070 at the 26th United Nations Climate Change Conference in Glasgow, Scotland. According to S&P Global Market Intelligence, Indian banks are reluctant to engage with green finance due to the extra costs involved, a lack of demand and an aversion to taking on overseas debt.

Japan is also playing catch-up in the growing green bond market. In order to accelerate its net-zero goals, the country may be forced to offer higher returns and greater disclosure to attract investors, according to S&P Global Market Intelligence.

For many years, Europe dominated the green bond market, although its share of issuance dropped to 41.7% in the second quarter. The European Parliament’s Committee on Economic and Monetary Affairs is seeking to establish tougher rules for green bonds. These rules include requirements that issuers have verified transition plans, that investors be allowed to take legal action if their investment suffers from noncompliance and that bond issuers disclose if funding will be used for nuclear- or gas-related projects. In the second quarter of 2022, Germany and France continued to lead green bond issuance among EU nations.

Meanwhile, emerging markets are struggling to keep up. Green bond issuance in Latin America fell to a three-year low in the second quarter as global investors looked to avoid risk and keep investments local.

North America also saw its share of global issuance decline in the second quarter to 8.4% from 19.1% in 2021. However, the number of issuers in North America is the highest in the world. This means the green bond market in North America has many more issuers of smaller size — the City of Groton being just one of many.

Today is Monday, August 22, 2022, and here is today’s essential intelligence.

Written by Nathan Hunt. 




Low Volatility Holds Its Own

If the first six months of 2022 were defined by the woes of equities, the year’s second half has been defined (so far) by a comeback. Since hitting a low in mid-June, the S&P 500 has gained an impressive 17.1% through Aug. 18, 2022. In such an environment, low volatility strategies are expected to underperform, and, reliably, the S&P 500 Low Volatility Index (which has historically tempered the performance of the benchmark) gained “just” 14.5%, underperforming 2.6% in the same period. This reflects an upside capture of 85%.

—Read the article from S&P Dow Jones Indices


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Capital Markets

Trade Sales Pick Up As IPO Exits Plunge; Deal Value Hits 12-Month Low In July

Private equity and venture capital exits were down across the board in North America through the first half of the year, but sales to strategic buyers remained relatively robust amid the wider decline. Private equity-involved trade sales were down 21% year over year to $12.73 billion through June 30, according to S&P Global Market Intelligence data. Exits via secondary sales fell quite a bit further — down 45% year over year for that same period — and private equity-backed IPOs essentially disappeared from the major U.S. exchanges during the first two quarters of 2022.

—Read the article from S&P Global Market Intelligence


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Global Trade

Watch: Market Movers Europe, Aug. 22-26: Nord Stream To Shut Down Amid Soaring Energy Prices And Supply Chain Disruptions

This week's Market Movers Europe with Charles Thompson, associate editor for EMEA aluminum, looks closely at Primary Aluminum and the 6060/6063 Billet markets. The video also discusses supply concerns linger as oil prices drift lower, European gas prices back at record highs, the U.K. tariff cap hike announcement and Black Sea grains business reopening.

—Watch the video from S&P Global Commodity Insights


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U.S. Inflation Reduction Act Emphasizes Affordability; Credit Implications Across Sectors Are Mixed

The U.S. Inflation Reduction Act was signed into law on August 16, including major climate provisions intended to reduce demand for fossil fuels while encouraging consumer and commercial users to switch to renewable energy sources. S&P Global Ratings thinks that initiatives in the legislation could accelerate existing actions at the state and local government level and by corporations that already underpin long-term energy transition.

—Read the report from S&P Global Ratings

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Energy & Commodities

Diesel Market May Need Prices To Stay High To Offset New Global Crisis

The diesel crisis lies dormant. While prices have dropped from a March spike, record-low stocks, demand expected from the onset of winter, and the threat of a drop off in Russian supplies could all cause prices to erupt. Diesel prices may have fallen some 25% since hitting a record high March 8 amid growing demand destruction as the global economy creaks, inflation spirals and Russian oil flows keep coming.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Understanding The Current Global Semiconductor Shortage, Preparing For The Future

The market for semiconductors has been volatile in the last two years and experts predict supply chain challenges across the semiconductor industry will extend to late 2023 and early 2024. To address changing market conditions, S&P Global Engineering Solutions spends in-depth, one-on-one time with its customers focused on the electronic component supply chain and the roots of this complex issue. In this article, it shares some of its perspectives on the current shortage and the steps industry practitioners are taking to mitigate such challenges.

—Read the article from S&P Global Engineering Solutions

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