Operating pressures and an increasing appetite for debt and are weighing on the outlook for global stock exchanges, clearinghouses and other market infrastructure firms, Fitch Ratings says.
In a new report, the rating agency said that an increase in debt-funded acquisitions and growing pressures on emerging market firms are driving a deteriorating environment for the market infrastructure sector, which has a negative rating outlook.
An ongoing demand for both consolidation and diversification at global exchanges “are expected to continue in 2021, fueling M&A,” Fitch said.
Yet, at the same time, Fitch noted that regulators’ concerns about competition and pricing “may constrain opportunities for fee increases and drive increased anti-trust scrutiny of proposed mergers.”
Additionally, Fitch said that a reduction in market volatility in 2021 (relative to 2020) will likely pressure earnings in the sector next year.
“Lower interest rates will likely lead to subdued trading in interest rate products, resulting in revenue headwinds for major [central counterparties],” Fitch said.
Low rates will also pressure interest income at central securities depositories, the rating agency noted.
“Despite these headwinds,” Fitch said, infrastructure firms continue to have relatively strong credit ratings due to their franchise strength, diversified businesses, solid capital and liquidity positions, and their operational resilience.