WEBVTT - The Global Reallocation of Trust 0:00:02.720 --> 0:00:09.040 Bloomberg Audio Studios, podcasts, radio news. Just before we got started, 0:00:09.119 --> 0:00:11.239 one thing I want to mention to you. You may 0:00:11.360 --> 0:00:14.320 remember that last year we recorded some of our podcasts 0:00:14.320 --> 0:00:17.840 at Pama House in Edinburgh as part of the Edinburgh Fringe. 0:00:18.000 --> 0:00:20.800 We are doing that again this year. The show is 0:00:20.800 --> 0:00:23.599 called The Butcher, The Brewer, the Baker and marinsum set Web. 0:00:23.760 --> 0:00:26.119 I will be discussing all sorts of exciting political and 0:00:26.160 --> 0:00:29.520 economic things with a variety of fascinating guests. Tickets are 0:00:29.600 --> 0:00:32.280 on sale now at the Fringe website. It's on the 0:00:32.400 --> 0:00:35.199 twenty second, twenty third and twenty fourth of August and 0:00:35.240 --> 0:00:37.440 we very much hope that we will see you there. 0:00:47.560 --> 0:00:50.160 Welcome to Merindrog's Money the podcast and with people who 0:00:50.200 --> 0:00:53.760 know the markets explain the markets. I'm merriornsum set Web. 0:00:54.120 --> 0:00:57.360 Now there is a growing sense among global investors that 0:00:57.560 --> 0:01:00.640 it is time to start looking outside the US for 0:01:00.720 --> 0:01:03.600 your equity investments at least, and we have talked about 0:01:03.600 --> 0:01:06.320 this a lot on the show. We're calling it, as 0:01:06.319 --> 0:01:09.880 our others, the Great rotation where capital that once flowed 0:01:09.920 --> 0:01:11.920 almost entirely to the US and we've looked at the 0:01:12.000 --> 0:01:14.160 numbers on that over the last few months is now 0:01:14.200 --> 0:01:18.560 beginning to move elsewhere. In particular, we've been talking about Europe. 0:01:18.560 --> 0:01:22.360 The dollar is softening, valuations in Europe achieved, the geopolitical 0:01:22.440 --> 0:01:25.880 landscape is all over the place. It no longer makes 0:01:25.920 --> 0:01:30.800 sense to ignore the markets in Europe. Institutions are responding. 0:01:30.840 --> 0:01:32.720 There is a lot going on, and we are going 0:01:32.720 --> 0:01:35.040 to talk about some of the things that are happening 0:01:35.120 --> 0:01:38.520 in markets globally and particularly in Europe with this week's 0:01:38.640 --> 0:01:41.480 guest to is Stefan Boujna, who is the CEO of 0:01:41.640 --> 0:01:46.119 Urinex and the chairman of its managing board. Welcome, Stephan, 0:01:46.200 --> 0:01:47.560 Thank you so much for joining us today. 0:01:47.880 --> 0:01:48.720 Thank you for having me. 0:01:49.560 --> 0:01:52.440 Before we start talking about markets, tell us a little 0:01:52.480 --> 0:01:56.520 bit about Urinex, right, it's the biggest exchange operator in Europe. 0:01:56.520 --> 0:01:59.160 You've been through a series of acquisitions, you are and 0:01:59.240 --> 0:02:01.040 quite a lot of stock markets. Now, tell us a 0:02:01.080 --> 0:02:02.400 little bit about what you do. 0:02:03.160 --> 0:02:06.400 While Yournax is a company that was funded twenty five 0:02:06.480 --> 0:02:09.720 years ago that went through all sorts of bumping times, 0:02:10.120 --> 0:02:13.960 was reipod after seven complicated years under the ownership of 0:02:14.000 --> 0:02:17.760 New York's Regent. It was reipled in twenty fourteen, for 0:02:17.840 --> 0:02:21.799 a market cap of one point four billion euro. Today's 0:02:21.800 --> 0:02:25.360 a company with the market cap between fifteen and sixteen 0:02:25.840 --> 0:02:29.840 billion euro, so it's much larger. And this success is 0:02:29.840 --> 0:02:35.280 the outcome of a significant work in terms of consolidating 0:02:35.680 --> 0:02:40.080 a market infrastructure culture. So today we consolidate and we 0:02:40.160 --> 0:02:43.440 operate with a single liquidity pool, a single of the book, 0:02:43.480 --> 0:02:52.720 a single technology platform, the market infrastructures of Paris, Amsterdam, Brussels, Lisbon. 0:02:53.240 --> 0:02:57.080 And in twenty seventeen eighteen we both the Irish trapic change. 0:02:57.280 --> 0:03:00.320 In twenty nineteen we bought cost the birth VPS Way. 0:03:00.960 --> 0:03:05.800 In twenty twenty we both the VP securities the CSDS 0:03:05.840 --> 0:03:09.880 of Copenhagen. In twenty twenty and twenty one we both 0:03:10.560 --> 0:03:15.160 the box set in a group in Milan. And we 0:03:15.160 --> 0:03:18.960 are in the process or in a possible acquisition of 0:03:19.120 --> 0:03:23.800 the Elginate Change of the ten Stocking Change. So a 0:03:23.840 --> 0:03:29.200 significant part of our business is about consolidating marketing infrastruction 0:03:29.280 --> 0:03:33.760 in Europe. It's not what we do only, but this 0:03:33.919 --> 0:03:39.520 is very important and UK audience, it's important to bear 0:03:39.560 --> 0:03:42.840 in mind that this single liquidity pool in Europe is 0:03:42.880 --> 0:03:47.240 now twice a larger approximately than the London solid change 0:03:48.520 --> 0:03:51.680 every day. We trade around ten to twelve billion euro 0:03:52.360 --> 0:03:57.320 of on the single integrated market of URNX, and the 0:03:57.360 --> 0:04:00.600 aggregate market capitalization of the company is listed on the 0:04:00.640 --> 0:04:03.800 single market of uron X is around seven billion euro, 0:04:04.160 --> 0:04:07.640 which is approximately towards the size of the London so 0:04:07.760 --> 0:04:12.200 Change get market capitalization. So this is for equities, for sure, 0:04:13.120 --> 0:04:18.440 the leading platform in Europe. Obviously, alongside that, we are 0:04:18.560 --> 0:04:25.040 very active in soft commodities now, agricultural commands, in inequity trading, 0:04:25.400 --> 0:04:28.000 in fixed income trading in particular in sovereign depth trading, 0:04:28.839 --> 0:04:32.120 but also in poex trading in London, Singapore and New 0:04:32.200 --> 0:04:36.920 York and and and for sure in also the diversified 0:04:36.960 --> 0:04:43.760 services corporate solutions culture. So historically our change business a 0:04:43.800 --> 0:04:50.839 single integrated stocking consiness, the largest player inequities in Europe 0:04:51.240 --> 0:04:52.840 and the diversity sided business. 0:04:52.839 --> 0:04:56.279 Now, okay, brilliant. Well, obviously a lot of growth under 0:04:56.320 --> 0:04:57.640 your tenure. I hope you have shares. 0:04:57.920 --> 0:05:00.719 I have some shares, but it's it's a litt state company, 0:05:01.200 --> 0:05:05.360 so I make revenue, I don't make capital, of course. 0:05:05.560 --> 0:05:08.560 Okay, Well, I enjoyed that talk about how everything is 0:05:08.640 --> 0:05:11.080 much bigger than London. But of course, we must bear 0:05:11.080 --> 0:05:13.279 in mind that if you bring together the markets of 0:05:13.560 --> 0:05:16.760 several large economies, that that market will definitely be bigger 0:05:16.760 --> 0:05:18.679 than the market of a single economy. And I will 0:05:18.720 --> 0:05:21.000 just point out that if you look at the Global 0:05:21.000 --> 0:05:26.960 Financial Centers Index, London still always comes at second New York, London, 0:05:27.480 --> 0:05:30.640 Hong Kong, and the first financial center that even makes 0:05:30.680 --> 0:05:33.440 it onto that list as Frankfurt at number eleven. So 0:05:33.520 --> 0:05:35.040 you know we still have something going for us here. 0:05:35.080 --> 0:05:37.919 No, no, that's for sure. And I love your country 0:05:37.960 --> 0:05:40.680 and we have more than one hundred people working there 0:05:40.680 --> 0:05:43.039 and that we have more employees to date and before Brexit. 0:05:43.320 --> 0:05:46.320 My point is just to highlight the fact that when 0:05:46.320 --> 0:05:49.919 it comes to equity market, you need to compare Apple 0:05:49.960 --> 0:05:52.359 with apples, and you have to compare the London section 0:05:52.600 --> 0:05:56.400 equity market with the alternative, which is not a location 0:05:56.480 --> 0:05:59.159 in a cellar collection of locations, but which is a 0:05:59.240 --> 0:06:03.159 single inte greeted market. That's why we have much more 0:06:03.279 --> 0:06:06.320 international ieos and much more IPOs than anywhere else in 0:06:06.320 --> 0:06:10.640 Europe because we operate a single integrated European market and 0:06:10.800 --> 0:06:14.839 size that matter. And when it comes to liquidity, all right. 0:06:14.760 --> 0:06:18.000 I'll give you that so you will have oversight then 0:06:18.279 --> 0:06:21.520 of pretty much everything happening across European extu markets. And 0:06:21.720 --> 0:06:23.880 so let's talk about the extent to which you are 0:06:23.960 --> 0:06:29.719 seeing this great rotation capital leaving the US for European markets. 0:06:30.480 --> 0:06:32.520 I don't want to repeat things that are probably well 0:06:32.560 --> 0:06:35.279 known by your audience, but there was a trend that 0:06:35.360 --> 0:06:38.960 started at the end of last year, before the Trump moment, 0:06:39.600 --> 0:06:45.440 which was all about the US is expensive and Europe 0:06:45.480 --> 0:06:51.000 is cheap. The concept of evaluation multiples getting extremely expensive 0:06:51.080 --> 0:06:55.039 in the US and valuation multiples in Europe not being 0:06:55.160 --> 0:06:59.520 justified by the respect of the company. That was part 0:06:59.640 --> 0:07:03.280 of a process that initially DIDs some form of relocational 0:07:03.360 --> 0:07:08.120 asset before January then, so that that's what we could 0:07:08.240 --> 0:07:13.880 characterize as a votation. What has happened since January is different. 0:07:15.080 --> 0:07:20.960 This is a massive global reallocation of trust. It's not 0:07:21.080 --> 0:07:26.720 a votation. It's a global reallocation of First because slowly 0:07:28.720 --> 0:07:34.600 the world the investors realize that the US as we 0:07:34.680 --> 0:07:39.160 knew it is not recognizable. And that's why First is 0:07:39.200 --> 0:07:43.600 being relocated across the globe across as a classes. By 0:07:43.640 --> 0:07:48.480 the way, uh, everyone talks about equity, but what is 0:07:48.520 --> 0:07:53.200 happening on the sovereign debt world is absolutely fascinating. So 0:07:54.680 --> 0:07:59.440 what is happening on the equity sign as mine? The 0:07:59.520 --> 0:08:05.640 perception is that weeks after weeks, the US are accumulating 0:08:05.680 --> 0:08:08.760 all the features of what used to be called when 0:08:08.760 --> 0:08:12.720 we were young and slim an emerging market. The US 0:08:12.800 --> 0:08:16.320 is becoming an emergent market in every respect. The role 0:08:16.360 --> 0:08:21.280 of law is dislocating, and that's one feature of an 0:08:21.360 --> 0:08:25.240 emergent market. Usually, the volatility of decision making of the 0:08:25.320 --> 0:08:31.240 leadership is there. The leadership is appointing very strange people 0:08:31.320 --> 0:08:39.960 in very senior positions. The conceptual bedrock of decisions is debatable. 0:08:40.800 --> 0:08:43.560 You don't recognize whether they do things that are good 0:08:43.559 --> 0:08:47.839 for them or why what's the need for themselves? So 0:08:48.240 --> 0:08:52.320 the lack of abviouse rationality behind decisions is also one 0:08:52.320 --> 0:08:57.600 feature of an emergent market. And what is fascinating is 0:08:57.600 --> 0:08:59.640 is the fear in their eyes, the fact that they 0:08:59.720 --> 0:09:04.920 feed intimidated and they don't want to confront the leadership 0:09:04.960 --> 0:09:08.400 because there is a level of brutality in interactions with 0:09:08.480 --> 0:09:12.959 the leadership. That is that is again one specificity of 0:09:13.840 --> 0:09:16.800 an emerging market. So it's okay to do business in 0:09:16.840 --> 0:09:20.360 the emerging market. It's fine. You just need a higher return, 0:09:20.480 --> 0:09:24.480 quicker returns, and slower evaluations. And this is what is happening. 0:09:24.880 --> 0:09:29.160 So behind the global reallocation of trust, there is an 0:09:29.200 --> 0:09:34.360 element of okay, we understand the world, the dis environment 0:09:36.120 --> 0:09:40.040 precisely than before. There is a much stronger level of 0:09:40.120 --> 0:09:45.600 uncertainty and unpredictability, So I need lower valuations. 0:09:46.120 --> 0:09:49.640 But nonetheless, the usxrely market hits new high after new high. 0:09:49.720 --> 0:09:52.480 No, but I'm telling you what is happening. As you know, 0:09:53.280 --> 0:09:58.000 the US valuation requires more than everywhere else, a clean 0:09:58.440 --> 0:10:02.400 distinction between the Magnificent seven and the others. And that's 0:10:02.400 --> 0:10:05.640 the dominant test that needs to be applied before making 0:10:06.440 --> 0:10:09.560 across the line and comments about the level of markets. 0:10:09.600 --> 0:10:13.560 What I'm telling you is that behind the recovery, the 0:10:13.600 --> 0:10:17.559 stronger recovery of Europe markets in part continental europeen markets 0:10:18.400 --> 0:10:22.400 versus the US, there is a number of US companies 0:10:22.440 --> 0:10:27.359 who tell us we can't do proper valuation of US 0:10:27.400 --> 0:10:31.680 industrial companies because we don't know how to block the 0:10:31.720 --> 0:10:34.400 basic metrics. What is going to be the inflation, what 0:10:34.600 --> 0:10:37.000 is going to be the interest rates? What is going 0:10:37.080 --> 0:10:39.200 to be the accent rate. What is going to be 0:10:39.240 --> 0:10:43.160 the cost of inputs, What is going to be the 0:10:43.559 --> 0:10:48.640 probability the visibility of export for any industrial company. Many 0:10:48.679 --> 0:10:52.160 of those factors are open in the air because of 0:10:52.200 --> 0:10:55.920 the volatility of the current type war. So this is 0:10:55.960 --> 0:10:59.480 there now on the dead side, Kelly. You can't add 0:11:00.440 --> 0:11:05.320 so much depth and so much deficit without some form 0:11:05.640 --> 0:11:08.920 of reassessment of the pricing of the yield. And that's 0:11:08.920 --> 0:11:11.320 what the rest of the world is doing. So we 0:11:11.400 --> 0:11:13.920 are not an institution where the world is massively shortening 0:11:14.080 --> 0:11:18.120 us that to massively belong on your pen equity or 0:11:18.120 --> 0:11:22.200 in Europeen debt. We are in a world where people 0:11:22.360 --> 0:11:26.040 don't reinvest, don't all out when they redeals an asset, 0:11:26.679 --> 0:11:31.720 the answers switching quietly, so that that's what is behind 0:11:31.760 --> 0:11:36.360 the great votation. A part of it is sustainable, basically 0:11:36.360 --> 0:11:41.240 the real location of multiples, I mean career. The current 0:11:41.320 --> 0:11:43.960 valuation of the US market remains of a valued in 0:11:44.000 --> 0:11:47.600 the eyes of many investors. The part is just going 0:11:47.640 --> 0:11:51.360 to stabilize when the dust settlers in the US. Even 0:11:51.440 --> 0:11:55.080 when if and when I think it's not a market correction, 0:11:55.360 --> 0:11:59.280 it's not even the vrotational asset. It's a fundamentality allocation 0:11:59.840 --> 0:12:02.960 of trust across the planet. I was in in Asia 0:12:03.080 --> 0:12:06.320 a few days ago and in the Gulf in a 0:12:06.400 --> 0:12:08.800 few weeks ago, a few months ago, and people aren't 0:12:08.800 --> 0:12:13.000 telling us show us assets in Europe because we want 0:12:13.000 --> 0:12:15.319 to diversify your way from US, because we have been 0:12:15.400 --> 0:12:18.520 used to be too consultated on US assets. I've seen 0:12:18.559 --> 0:12:22.760 some people in Asia telling me, okay, we were exposed 0:12:23.080 --> 0:12:27.440 some larger funds were we had a strategical location of 0:12:27.600 --> 0:12:30.880 five percent to Europe only we want to move to 0:12:30.920 --> 0:12:35.480 ten percent. Well, ten percent is not a lot at 0:12:35.520 --> 0:12:37.679 global level, but it's just the double of what they 0:12:37.720 --> 0:12:39.000 were allocating to Europe. 0:12:39.320 --> 0:12:41.079 It's interesting, though, isn't it that from the point of 0:12:41.160 --> 0:12:45.000 view of non EU, non US investors, you could say 0:12:45.040 --> 0:12:48.440 that the EU, and certainly independent in different countries inside 0:12:48.480 --> 0:12:51.520 the EU, are remarkably politically volatile as well. And I 0:12:51.559 --> 0:12:54.600 mean that situation in France is appalling on a par 0:12:54.760 --> 0:12:59.320 with Americas. So it's it's more the level of trust 0:12:59.360 --> 0:13:01.160 in the US come down to meet the level of 0:13:01.200 --> 0:13:04.080 trust in European as it's rather than anything else. 0:13:05.080 --> 0:13:10.200 One guy told me Europe today is perceived as a 0:13:10.400 --> 0:13:14.840 large Switzerland. It's not like everyone is getting fascinated about 0:13:14.840 --> 0:13:18.640 the growth prospects of the European economies or the political 0:13:18.679 --> 0:13:22.840 stability of the pot The points you are making about 0:13:23.600 --> 0:13:28.200 the political fragmentation in the French landscape is there. It's 0:13:28.280 --> 0:13:33.360 just the feeling that the institutional framework is stable and predictable. 0:13:33.920 --> 0:13:38.560 You know where you are, you know how to make assumptions, 0:13:38.960 --> 0:13:43.400 and you know the bandwidth on things where your business 0:13:43.440 --> 0:13:46.240 is going to be operated. So the amount of uncertainty 0:13:46.960 --> 0:13:51.760 is much more reduced, so you have probably a lower 0:13:51.840 --> 0:13:55.600 yield but much lower risk, hands a better return than 0:13:55.640 --> 0:13:59.000 a situation with a yield that can be strong, but 0:13:59.080 --> 0:14:03.280 the significant volatility and suddenly so forth certain in lessers 0:14:03.720 --> 0:14:08.319 and that that leads to other decisions that are happening 0:14:08.360 --> 0:14:12.560 below the screen. I've met the CEO of a larger 0:14:13.320 --> 0:14:17.040 European company and telling me that it's rapet creating physical 0:14:17.080 --> 0:14:20.280 assets from from the US that were ac custodied by 0:14:20.360 --> 0:14:23.920 a large custodians. They don't want to run the risk 0:14:24.000 --> 0:14:28.000 of weaponization of assets under custody in the US. 0:14:28.160 --> 0:14:29.880 So when you when you say physical classes in the 0:14:29.960 --> 0:14:31.120 ussuming gold. 0:14:31.480 --> 0:14:34.120 Not necessarily gold. Gold is a very important debate. And 0:14:34.400 --> 0:14:36.760 you know you have been you've been made aware of 0:14:36.800 --> 0:14:39.520 the of the rumors about some central banks in the 0:14:39.560 --> 0:14:42.880 European Union decided to attatriate some gold and as you know, 0:14:42.920 --> 0:14:45.520 they're the public on those decisions, but they did not 0:14:45.640 --> 0:14:51.119 deny the rumor. But I'm talking about security shares or instruments, 0:14:51.440 --> 0:14:55.760 all sort of that can be custodian uh and by 0:14:55.800 --> 0:15:00.320 by US under custody of some US institutions that are 0:15:00.360 --> 0:15:05.240 being repatriated. So these things happen. So that's why I 0:15:05.280 --> 0:15:08.400 think it's very scary, is that people are doing things 0:15:08.400 --> 0:15:11.400 below the rather are and these things are happening. A 0:15:11.480 --> 0:15:14.920 part of it cornsets into iiO evaluation. A part of 0:15:14.960 --> 0:15:20.160 the iiO evaluation in Europe in relative terms is driven 0:15:20.240 --> 0:15:25.640 by a renewed appetite in relative terms visa bit the US, 0:15:26.240 --> 0:15:30.400 and as you rightly pointed out, in relative terms via 0:15:30.560 --> 0:15:32.360 the US. It's not like all of a sudden the 0:15:32.360 --> 0:15:36.440 growth prospects of Europe are appearing significant Clusier. It's just 0:15:36.440 --> 0:15:40.560 that Europe appears much much more predictable. Okay. 0:15:40.920 --> 0:15:42.920 The other part of this great rotation of the best 0:15:42.920 --> 0:15:45.120 ti best to talk about when we'll come back to 0:15:45.160 --> 0:15:48.960 maybe to growth in Europe. But the other part of 0:15:49.080 --> 0:15:52.440 the Great rotation is also the patriotic side of it. So, 0:15:52.600 --> 0:15:54.840 for example, you've probably been following the debate in the 0:15:54.960 --> 0:15:58.800 UK about the extent to which pension funds, for example, 0:15:58.960 --> 0:16:01.680 should be obliged to invest in UK assets, and the 0:16:01.800 --> 0:16:04.440 extent to which people who have money inside a tax 0:16:04.480 --> 0:16:06.960 wrapper in the UK and ISO or whatever should be 0:16:07.000 --> 0:16:10.000 obliged to invest in UK assets. And certainly this is 0:16:10.040 --> 0:16:13.040 something that has come up in France, this idea that 0:16:13.080 --> 0:16:16.760 it's ridiculous to be sending your productive capital of European 0:16:16.760 --> 0:16:19.720 countries to be invested in the US, and the sense 0:16:19.760 --> 0:16:23.920 that there should be some way to actively encourage, possibly 0:16:23.960 --> 0:16:29.960 even mandate the investing of European saves money inside the 0:16:30.000 --> 0:16:32.280 European Union as opposed to outside. 0:16:32.960 --> 0:16:36.320 One preliminary comment and then the fundamental answer diogression. The 0:16:36.360 --> 0:16:39.840 preliminary comment is that it's very different to advise the 0:16:39.880 --> 0:16:45.040 issue in the UK and in Europe because within the 0:16:45.080 --> 0:16:50.960 European Union you can build relatively diversified portfolios. In a 0:16:50.960 --> 0:16:53.720 block of four hundred and fifty million people. With the 0:16:53.760 --> 0:16:56.960 list the second largest economy in the planet, you can 0:16:57.000 --> 0:17:01.200 be the diversified portfolio across Europe. Since we cannot have 0:17:01.480 --> 0:17:04.920 it's forbidden by your open law, any forced allocation by 0:17:05.000 --> 0:17:09.440 country in any way whatsoever, then it could make sense 0:17:09.840 --> 0:17:13.440 at some point of time to consider incentives to invest 0:17:13.600 --> 0:17:19.760 some assets within the European Union without harming reasonable diversification. 0:17:20.080 --> 0:17:22.920 I think it is more complicated in the UK, just 0:17:22.960 --> 0:17:27.639 because the UK economy is smaller, and therefore any force 0:17:27.800 --> 0:17:31.880 or incentivized allocation within the UK economy which would lead 0:17:31.920 --> 0:17:36.040 to a disproportionate concentration that you don't get when you 0:17:36.080 --> 0:17:40.159 can invest Acrossure. So that's a metastasis of Brexit or 0:17:40.160 --> 0:17:44.040 contradiction of brexit. You can take back control, but the 0:17:44.040 --> 0:17:47.000 more you reduce the size of the village, the more 0:17:47.080 --> 0:17:52.399 you end up into force incestuous relationships because the pool 0:17:52.800 --> 0:17:54.080 of assets is too small. 0:17:54.240 --> 0:17:56.359 I don't think expectations ever to ask anyone for one 0:17:56.400 --> 0:17:58.640 hundred percent of par asses and a lot better take 0:17:58.680 --> 0:17:59.960 the diversification argument. 0:18:00.280 --> 0:18:02.840 No, but that's why the debate is slightly different. But 0:18:03.280 --> 0:18:08.520 now because fundamentally more it's true that both in the 0:18:08.600 --> 0:18:12.520 UK and in the US, we are generating significant savings. 0:18:12.520 --> 0:18:16.280 More savings in the European continent than in the UK. 0:18:16.840 --> 0:18:18.880 You guys in the U kid have dept more than 0:18:18.920 --> 0:18:23.440 we do in the incontinent. So it's about between thirteen 0:18:23.440 --> 0:18:26.639 and eighteen percent of this posible income which is saved 0:18:26.960 --> 0:18:29.360 in the in the Europe. I don't know what other 0:18:29.440 --> 0:18:33.080 numbers in the UK should probably slightly round that or 0:18:33.200 --> 0:18:37.760 maybe slightly lower. And most of these savings is exported 0:18:38.040 --> 0:18:42.359 in the form of investment in the US. Up until there, 0:18:42.520 --> 0:18:45.560 it makes perfect sense because the best thing you could 0:18:45.640 --> 0:18:48.080 do with your savings was to allocate a part of 0:18:48.119 --> 0:18:52.760 your savings to projects, whether it's growth, and for the 0:18:52.800 --> 0:18:54.439 past ten years it was growth in the US, so 0:18:54.440 --> 0:18:57.360 it was making perfect sense in the search of neal 0:18:57.760 --> 0:19:02.680 to invest in the US. What became complicated is that 0:19:03.320 --> 0:19:06.119 when you combine the export of Europe and savings with 0:19:07.200 --> 0:19:11.159 the strength of the US equity markets, you get to 0:19:11.359 --> 0:19:15.320 the formation of huge in situations. I mean, very often 0:19:15.400 --> 0:19:20.360 people associate the success of the US economy to the innovation, 0:19:20.920 --> 0:19:26.399 the technology, energy, etc. And that's true, paliwel to an 0:19:26.640 --> 0:19:31.359 entrepreneurship and innovation. Technology is one leg of the US success. 0:19:31.560 --> 0:19:35.919 The other leg that nobody talks about enough is the 0:19:35.920 --> 0:19:38.359 fact that the success of the US economy is driven 0:19:38.440 --> 0:19:43.440 by the size of their pension savings. For everyone in 0:19:43.800 --> 0:19:46.240 the US, if you want to have some income when 0:19:46.280 --> 0:19:48.520 you are old, you need to buy shares when you 0:19:48.560 --> 0:19:51.240 are young. In Europe, when you want to have some 0:19:51.359 --> 0:19:53.640 income when you are old, you just need to hope 0:19:53.640 --> 0:19:57.880 that people around you continue to pay taxes and social contributions. 0:19:58.160 --> 0:20:01.080 So you get to a situation with some nuances in 0:20:01.119 --> 0:20:03.960 the UK, but with the strength of your corporate pension 0:20:04.200 --> 0:20:04.480 well and. 0:20:04.440 --> 0:20:06.439 Also our order and Roman system, so you know, we 0:20:06.480 --> 0:20:09.720 have a new vast sum of capital rising up in 0:20:09.720 --> 0:20:10.480 our auto. 0:20:12.000 --> 0:20:14.800 Large by and large many difference between a location of 0:20:14.840 --> 0:20:18.280 savings in the US and in the in Europe is 0:20:18.400 --> 0:20:21.600 the dominance of pension savings in the US that feeds 0:20:21.880 --> 0:20:26.720 long term defered liquidity instruments that are equity, and that 0:20:27.280 --> 0:20:32.040 what has created large companies like like Clarge, players like 0:20:32.080 --> 0:20:35.640 Black Hog, Van Guard, Felity, etcetera. So those guys then 0:20:36.200 --> 0:20:43.280 themselves work on diversification or strategical location and look at Europe. 0:20:43.600 --> 0:20:48.000 So the import they manage a mixed pool of European 0:20:48.040 --> 0:20:52.080 savings exported to the US. Local savings collected from the 0:20:52.200 --> 0:20:58.760 US auseholds and this combined pool is partly invested in Europe. 0:20:59.040 --> 0:21:02.520 So that's why we have this paraducts of the US 0:21:02.880 --> 0:21:07.720 players bumping a lot of savings from Europe and exposing 0:21:07.720 --> 0:21:09.760 a lot of equity within European company. 0:21:09.840 --> 0:21:15.480 Yeah, and then you have European savers savings captain cash. 0:21:14.600 --> 0:21:18.600 Absolutely because we don't have the incentives to prepare for 0:21:19.280 --> 0:21:23.520 retirement with instruments that produce a better yield than cash 0:21:23.960 --> 0:21:27.240 and then which go with defer equidity that you can 0:21:27.440 --> 0:21:28.200 don't have with cash. 0:21:28.400 --> 0:21:31.920 So if you wanted to incentivize European savers to invest, 0:21:32.040 --> 0:21:35.160 you should slash the size of the welfare states significantly 0:21:35.520 --> 0:21:36.560 so that faced into it. 0:21:37.000 --> 0:21:40.800 I would not go that far. That's the intellectually pure conclusion, 0:21:41.280 --> 0:21:45.359 but clearly you should have an incentive set of incentives 0:21:45.359 --> 0:21:47.400 in some country have it. And by the way, because 0:21:47.640 --> 0:21:51.840 the European Union, I mean, these pension arrangements are our 0:21:52.280 --> 0:21:55.080 member states level. I mean the UK when it was 0:21:55.119 --> 0:21:58.120 part of the European Union as at the moret soficing 0:21:58.200 --> 0:22:01.080 indeendon pension schemes many. 0:22:00.920 --> 0:22:03.200 Cos we also had one of the highest highest rates 0:22:03.200 --> 0:22:06.480 of pension savings to GDP, which some people suggested there 0:22:06.520 --> 0:22:08.320 was a jolly good reason to live in a hurry. 0:22:08.960 --> 0:22:11.720 My point is that it was not incompatible with being 0:22:11.800 --> 0:22:15.600 member of the European Union. So since you left, we 0:22:15.640 --> 0:22:18.840 have other countries with a significant share of GDP in 0:22:18.920 --> 0:22:27.320 pensions funds, like Sweden, Netherlands and Denmark. So member states 0:22:27.400 --> 0:22:30.600 have to address exactly the point you are making, which is, 0:22:31.200 --> 0:22:34.560 if I incentivize people to invest in pension funds, does 0:22:34.600 --> 0:22:38.359 it create a risk of pumping out resources for the 0:22:38.400 --> 0:22:43.240 pair as you go state? Isn't such the first political 0:22:43.400 --> 0:22:46.280 problem that ever country as to address. There is another 0:22:46.359 --> 0:22:50.159 one which is less visible, but which is very fundamental, 0:22:50.359 --> 0:22:53.840 is that most European countries, not all of them, but 0:22:54.000 --> 0:22:56.440 many of them. It's not for the gest of on 0:22:56.440 --> 0:23:00.720 in Sweden, with the case of Italy, Spain, Frances have 0:23:01.000 --> 0:23:06.920 incentives directly or indirectly to incentivize people to buy sovereign debt, 0:23:07.760 --> 0:23:10.520 so the liquidity of the central debt is usually encouraged 0:23:10.560 --> 0:23:14.760 by all sorts of tax incentives. Now, clearly the reason 0:23:14.800 --> 0:23:17.760 why people keep cash or cause it cash is because 0:23:18.720 --> 0:23:24.159 they have they are offered protected liquidity and protectly yield instruments. 0:23:24.760 --> 0:23:28.520 Who to GOVI is if you want people to swep 0:23:28.560 --> 0:23:32.400 up their investments from govies to long term equity, then 0:23:32.440 --> 0:23:36.879 you adduce mechanically some of the equality of the sovereign 0:23:36.920 --> 0:23:39.879 debt and governments have to accept at to make an 0:23:39.920 --> 0:23:43.960 arbit frunde. Do they want to bonsor or to support 0:23:44.080 --> 0:23:47.000 or to encourage the liquidity of their own debt or 0:23:47.040 --> 0:23:51.879 do they want to support encourage the equity funding and 0:23:51.880 --> 0:23:56.800 the growth of their companies and that in the in 0:23:56.840 --> 0:24:00.880 one case, if you want to encourage liquidity, the equity funding, 0:24:01.240 --> 0:24:05.520 the risk taking capabilities of your companies, you encourage pension 0:24:05.600 --> 0:24:08.960 funds and long term equity investments. If you want to 0:24:09.200 --> 0:24:12.960 encourage to facilitate the liquidity of your debt, then you 0:24:13.040 --> 0:24:15.440 put all sorts of incentives for people to buy govies. 0:24:15.880 --> 0:24:20.159 And this is another debate, the arbitwie between equity for 0:24:20.280 --> 0:24:25.399 companies or money for gobies to find death, which is 0:24:25.440 --> 0:24:31.720 complementary to the for debate, which is pensions, individual saving 0:24:31.800 --> 0:24:35.720 buses that pully solidity skills. 0:24:36.000 --> 0:24:38.280 Part of what's happening as a result of this conversation 0:24:38.520 --> 0:24:42.320 is this promotion of the European Savings and Investment Union 0:24:42.440 --> 0:24:46.080 or the what was the European Capital Markets Union, and 0:24:46.280 --> 0:24:48.480 that is going to work to do exactly as you say, 0:24:48.560 --> 0:24:50.360 to take all this counts and deploy it one way 0:24:50.480 --> 0:24:53.720 or another into European equities in the main. Is that 0:24:53.760 --> 0:24:56.320 what that's designed to do, and that should be another 0:24:56.359 --> 0:24:59.359 another boost to European acquities across the board that inflow 0:24:59.400 --> 0:24:59.920 of capital. 0:25:00.480 --> 0:25:04.119 Yeah. I mean, the reason why there was there's a 0:25:04.160 --> 0:25:07.600 waking up is the multiple reason why the this saving 0:25:07.600 --> 0:25:11.240 investment Union is going to happen. Since we're talking to 0:25:11.359 --> 0:25:15.359 UK audience, I really want to explain why we are 0:25:15.400 --> 0:25:19.320 where we are and why the Capital Market Union stopped 0:25:19.400 --> 0:25:21.679 and did not deliver for the past ten years. The 0:25:21.720 --> 0:25:25.920 Capital Market Union was a very smart idea of Jonathan 0:25:26.000 --> 0:25:30.639 Hill when he was the UK Commissioner at the European Union. 0:25:31.480 --> 0:25:35.480 And at that time the idea was very simple, was 0:25:35.560 --> 0:25:40.879 to accelerate the integration of European capital markets because it 0:25:40.960 --> 0:25:44.359 was going to be good for Europe, but it was 0:25:44.400 --> 0:25:47.520 going to become excellent for London because at that time 0:25:47.560 --> 0:25:51.800