Top Research & Insights of 2019

By dollar amount, outstanding U.S. corporate debt instruments rated by S&P Global Ratings grew by 3% in 2018—to $9.3 trillion as of Jan. 1, 2019. Nearly 72% of this debt is investment grade ('BBB-' or higher).

A greater share of this debt is from nonfinancial companies ($7.1 trillion) than from financial services issuers ($2.2 trillion). The 'BBB' category is the largest by debt amount, with nearly $3.8 trillion, 77% of which is from nonfinancial companies.

S&P Global Ratings has created the ESG Risk Atlas to provide a view of relative environmental, social, and governance (ESG) risks we see around the world. The Atlas, which takes the form of an online infographic, reflects our observations about various ESG risks that different sectors and geographies face.

The Atlas comprises a Sector Risk and a Country Risk component. Sector Risk highlights the relative environmental and social exposures of a comprehensive range of business sectors. Country Risk considers corporate governance standards, regulations, and exposure to natural disasters in various countries or regions.

Leveraging our global reach, we have combined insights from our credit analysts located worldwide and from public assessments (such as those from the UN-supported Principles for Responsible Investment, World Bank, World Health Organization, and Transparency International) to develop our ESG risk profiles for each sector and region.

S&P Global Ratings' Chief U.S. Economist Beth Ann Bovino, Chief Asia-Pacific Economist Shaun Roache, and Chief EMEA Economist Sylvain Broyer wrote a descriptive analysis of the U.S. – China trade war on May 22, 2019.

The article explains that while the trade war brewing between the U.S. and China will likely have minimal direct macroeconomic effects on either country in the near future, the longer-term consequences for global supply chains, U.S. business sentiment, and consumers' purchasing power are growing. For now, S&P Global Ratings' economists believe the increase in tariffs laid out by U.S. President Donald Trump will boost overall U.S. consumer price inflation modestly—even companies such as Walmart and Macy's are warning that shoppers will almost certainly soon pay higher prices.

Financial markets are abuzz with questions regarding the nature and viability of digital currencies. As far as rated financial institutions' risk exposure is concerned, however, S&P Global Ratings believes that it is much ado about nothing. In our opinion, in its current version, a cryptocurrency is a speculative instrument, and a collapse in its market value would be just a ripple across the financial services industry, still too small to disturb stability or affect the creditworthiness of banks we rate.

We believe that cryptocurrencies, in their current version, have many characteristics of a speculative instrument. We think that retail investors would be the first to bear the brunt in the event of a collapse in their market value. We expect banks rated by S&P Global Ratings to be largely insulated, given that their direct or indirect exposure to cryptocurrencies appears to remain limited.

Saudi Aramco’s IPO looks doomed to failure as it targets a $2 trillion flotation. Tepid oil prices, the fraught politics of the Middle East and the demonization of fossil fuel producers in response to climate change fears have all made the initial public offering (IPO) a mission impossible.

The kingdom had looked poised to list up to 2% of its shares on its domestic market within weeks. But the long-delayed partial privatization of the world’s largest state-owned oil company now faces another indefinite postponement after the devastating attacks on some of its most important facilities at Abqaiq and Khurais in the Eastern Province of Saudi Arabia.

Wealth inequality in the U.S. isn't just for individuals; the divide between the haves and the have-nots continues to widen for American companies too. In fact, of the roughly 2,000 U.S. nonfinancial corporate borrowers S&P Global Ratings rates, just 25—or the top 1%—hold more than half of the record $1.9 trillion in cash and short- and long-term liquid investments as of year-end 2016.

This now $1 trillion hoard is nearly twice the $510 billion they held just five years ago. While all corporate cash grew a significant 10% last year, from $1.7 trillion at the end of 2015, the imbalance between cash and debt outstanding that we highlighted last year persists, with total debt rising approximately $350 billion, to $5.8 trillion.

'BBB' category bonds represent the majority of U.S. investment-grade corporate bond debt, and this category surpasses the entirety of the speculative-grade bond market in size.

Globally, 'BBB' category corporate debt (which includes bonds, notes, term loans, and revolving credit facilities) exceeds $7 trillion, and companies from the U.S. account for more than half of this debt.

Less than a third of 'BBB' category debt in the U.S. is rated 'BBB-', and the utility and high technology sectors account for the largest share of this 'BBB-' debt.

In one of the most comprehensive studies of its kind, a report from the S&P Global Market Intelligence Quantamental Research Team examined the performance of firms that have made female appointments to their CEO and CFO positions. The study found that firms with female CFOs are more profitable and generated excess profits of $1.8T over the study horizon. Firms with female CEOs and CFOs have produced superior stock price performance, compared to the market average. In the 24 months post-appointment, female CEOs saw a 20% increase in stock price momentum and female CFOs saw a 6% increase in profitability and 8% larger stock returns. These results are economically and statistically significant.

Firms with a high gender diversity on their board of directors were more profitable and larger than firms with low gender diversity. Firms with female CEOs and CFOs have a demonstrated culture of Diversity and Inclusion (D&I), evinced by a larger representation of females on the company’s board of directors. Firms with female CEOs have twice the number of female board members, compared to the market average (23% vs 11%).

Virtual banking is intensifying the competitive dynamics affecting Asia-Pacific banking.

Newly licensed indigenous virtual banks, global virtual-only banks, and digitized traditional banks are driving competition.

In the long term, virtual banking will likely contribute to the potential for increasing ratings differentiation between banking systems and banks across Asia-Pacific.

2018 turned out to be quite active in the structured finance markets, with over $1 trillion equivalent issued across the globe, representing double-digit growth on a year-over-year basis.

The U.S., China, Japan, Europe, and Canada all showed volume increases, while issuance in Australia and Latin America (LatAm) declined. With continued GDP growth and unemployment low, U.S. structured finance markets are forecast to perform well over the foreseeable future.

Some potential factors that could affect the continued global recovery of structured finance include the renegotiation of existing trade agreements, Brexit uncertainty, rising interest rates, and any market volatility that affects liquidity. Despite the risk of such exogenous shocks, we believe that the structured finance markets are unlikely to be affected broadly over the near term. As such, we expect 2019 issuance volume to be in the same $1 trillion neighborhood, and possibly slightly higher than last year.