Bloomberg Audio Studios, podcasts, radio news. Just before we got started, one thing I want to mention to you. You may remember that last year we recorded some of our podcasts at Pama House in Edinburgh as part of the Edinburgh Fringe. We are doing that again this year. The show is called The Butcher, The Brewer, the Baker and marinsum set Web. I will be discussing all sorts of exciting political and economic things with a variety of fascinating guests. Tickets are
on sale now at the Fringe website. It's on the twenty second, twenty third and twenty fourth of August and we very much hope that we will see you there. Welcome to Merindrog's Money the podcast and with people who know the markets explain the markets. I'm merriornsum set Web. Now there is a growing sense among global investors that it is time to start looking outside the US for your equity investments at least, and we have talked about
this a lot on the show. We're calling it, as our others, the Great rotation where capital that once flowed almost entirely to the US and we've looked at the numbers on that over the last few months is now beginning to move elsewhere. In particular, we've been talking about Europe. The dollar is softening, valuations in Europe achieved, the geopolitical landscape is all over the place. It no longer makes sense to ignore the markets in Europe. Institutions are responding.
There is a lot going on, and we are going to talk about some of the things that are happening in markets globally and particularly in Europe with this week's guest to is Stefan Boujna, who is the CEO of Urinex and the chairman of its managing board. Welcome, Stephan, Thank you so much for joining us today.
Thank you for having me.
Before we start talking about markets, tell us a little bit about Urinex, right, it's the biggest exchange operator in Europe. You've been through a series of acquisitions, you are and quite a lot of stock markets. Now, tell us a little bit about what you do.
While Yournax is a company that was funded twenty five years ago that went through all sorts of bumping times, was reipod after seven complicated years under the ownership of New York's Regent. It was reipled in twenty fourteen, for a market cap of one point four billion euro. Today's a company with the market cap between fifteen and sixteen billion euro, so it's much larger. And this success is the outcome of a significant work in terms of consolidating
a market infrastructure culture. So today we consolidate and we operate with a single liquidity pool, a single of the book, a single technology platform, the market infrastructures of Paris, Amsterdam, Brussels, Lisbon. And in twenty seventeen eighteen we both the Irish trapic change. In twenty nineteen we bought cost the birth VPS Way. In twenty twenty we both the VP securities the CSDS of Copenhagen. In twenty twenty and twenty one we both
the box set in a group in Milan. And we are in the process or in a possible acquisition of the Elginate Change of the ten Stocking Change. So a significant part of our business is about consolidating marketing infrastruction in Europe. It's not what we do only, but this is very important and UK audience, it's important to bear in mind that this single liquidity pool in Europe is now twice a larger approximately than the London solid change
every day. We trade around ten to twelve billion euro of on the single integrated market of URNX, and the aggregate market capitalization of the company is listed on the single market of uron X is around seven billion euro, which is approximately towards the size of the London so Change get market capitalization. So this is for equities, for sure,
the leading platform in Europe. Obviously, alongside that, we are very active in soft commodities now, agricultural commands, in inequity trading, in fixed income trading in particular in sovereign depth trading, but also in poex trading in London, Singapore and New York and and and for sure in also the diversified
services corporate solutions culture. So historically our change business a single integrated stocking consiness, the largest player inequities in Europe and the diversity sided business.
Now, okay, brilliant. Well, obviously a lot of growth under your tenure. I hope you have shares.
I have some shares, but it's it's a litt state company, so I make revenue, I don't make capital, of course.
Okay, Well, I enjoyed that talk about how everything is much bigger than London. But of course, we must bear in mind that if you bring together the markets of several large economies, that that market will definitely be bigger than the market of a single economy. And I will just point out that if you look at the Global Financial Centers Index, London still always comes at second New York, London, Hong Kong, and the first financial center that even makes
it onto that list as Frankfurt at number eleven. So you know we still have something going for us here.
No, no, that's for sure. And I love your country and we have more than one hundred people working there and that we have more employees to date and before Brexit. My point is just to highlight the fact that when it comes to equity market, you need to compare Apple with apples, and you have to compare the London section equity market with the alternative, which is not a location in a cellar collection of locations, but which is a
single inte greeted market. That's why we have much more international ieos and much more IPOs than anywhere else in Europe because we operate a single integrated European market and size that matter. And when it comes to liquidity, all right.
I'll give you that so you will have oversight then of pretty much everything happening across European extu markets. And so let's talk about the extent to which you are seeing this great rotation capital leaving the US for European markets.
I don't want to repeat things that are probably well known by your audience, but there was a trend that started at the end of last year, before the Trump moment, which was all about the US is expensive and Europe is cheap. The concept of evaluation multiples getting extremely expensive in the US and valuation multiples in Europe not being
justified by the respect of the company. That was part of a process that initially DIDs some form of relocational asset before January then, so that that's what we could characterize as a votation. What has happened since January is different. This is a massive global reallocation of trust. It's not a votation. It's a global reallocation of First because slowly the world the investors realize that the US as we knew it is not recognizable. And that's why First is
being relocated across the globe across as a classes. By the way, uh, everyone talks about equity, but what is happening on the sovereign debt world is absolutely fascinating. So what is happening on the equity sign as mine? The perception is that weeks after weeks, the US are accumulating all the features of what used to be called when we were young and slim an emerging market. The US is becoming an emergent market in every respect. The role of law is dislocating, and that's one feature of an
emergent market. Usually, the volatility of decision making of the leadership is there. The leadership is appointing very strange people in very senior positions. The conceptual bedrock of decisions is debatable. You don't recognize whether they do things that are good for them or why what's the need for themselves? So the lack of abviouse rationality behind decisions is also one
feature of an emergent market. And what is fascinating is is the fear in their eyes, the fact that they feed intimidated and they don't want to confront the leadership because there is a level of brutality in interactions with the leadership. That is that is again one specificity of an emerging market. So it's okay to do business in the emerging market. It's fine. You just need a higher return, quicker returns, and slower evaluations. And this is what is happening.
So behind the global reallocation of trust, there is an element of okay, we understand the world, the dis environment precisely than before. There is a much stronger level of uncertainty and unpredictability, So I need lower valuations.
But nonetheless, the usxrely market hits new high after new high.
No, but I'm telling you what is happening. As you know, the US valuation requires more than everywhere else, a clean distinction between the Magnificent seven and the others. And that's the dominant test that needs to be applied before making across the line and comments about the level of markets.
What I'm telling you is that behind the recovery, the stronger recovery of Europe markets in part continental europeen markets versus the US, there is a number of US companies who tell us we can't do proper valuation of US industrial companies because we don't know how to block the basic metrics. What is going to be the inflation, what is going to be the interest rates? What is going to be the accent rate. What is going to be the cost of inputs, What is going to be the
probability the visibility of export for any industrial company. Many of those factors are open in the air because of the volatility of the current type war. So this is there now on the dead side, Kelly. You can't add so much depth and so much deficit without some form of reassessment of the pricing of the yield. And that's what the rest of the world is doing. So we are not an institution where the world is massively shortening us that to massively belong on your pen equity or
in Europeen debt. We are in a world where people don't reinvest, don't all out when they redeals an asset, the answers switching quietly, so that that's what is behind the great votation. A part of it is sustainable, basically the real location of multiples, I mean career. The current valuation of the US market remains of a valued in the eyes of many investors. The part is just going to stabilize when the dust settlers in the US. Even when if and when I think it's not a market correction,
it's not even the vrotational asset. It's a fundamentality allocation of trust across the planet. I was in in Asia a few days ago and in the Gulf in a few weeks ago, a few months ago, and people aren't telling us show us assets in Europe because we want to diversify your way from US, because we have been
used to be too consultated on US assets. I've seen some people in Asia telling me, okay, we were exposed some larger funds were we had a strategical location of five percent to Europe only we want to move to ten percent. Well, ten percent is not a lot at global level, but it's just the double of what they were allocating to Europe.
It's interesting, though, isn't it that from the point of view of non EU, non US investors, you could say that the EU, and certainly independent in different countries inside the EU, are remarkably politically volatile as well. And I mean that situation in France is appalling on a par with Americas. So it's it's more the level of trust in the US come down to meet the level of trust in European as it's rather than anything else.
One guy told me Europe today is perceived as a large Switzerland. It's not like everyone is getting fascinated about the growth prospects of the European economies or the political stability of the pot The points you are making about the political fragmentation in the French landscape is there. It's just the feeling that the institutional framework is stable and predictable. You know where you are, you know how to make assumptions, and you know the bandwidth on things where your business
is going to be operated. So the amount of uncertainty is much more reduced, so you have probably a lower yield but much lower risk, hands a better return than a situation with a yield that can be strong, but the significant volatility and suddenly so forth certain in lessers and that that leads to other decisions that are happening below the screen. I've met the CEO of a larger European company and telling me that it's rapet creating physical assets from from the US that were ac custodied by
a large custodians. They don't want to run the risk of weaponization of assets under custody in the US.
So when you when you say physical classes in the ussuming gold.
Not necessarily gold. Gold is a very important debate. And you know you have been you've been made aware of the of the rumors about some central banks in the European Union decided to attatriate some gold and as you know, they're the public on those decisions, but they did not deny the rumor. But I'm talking about security shares or instruments, all sort of that can be custodian uh and by by US under custody of some US institutions that are
being repatriated. So these things happen. So that's why I think it's very scary, is that people are doing things below the rather are and these things are happening. A part of it cornsets into iiO evaluation. A part of the iiO evaluation in Europe in relative terms is driven by a renewed appetite in relative terms visa bit the US, and as you rightly pointed out, in relative terms via the US. It's not like all of a sudden the
growth prospects of Europe are appearing significant Clusier. It's just that Europe appears much much more predictable. Okay.
The other part of this great rotation of the best ti best to talk about when we'll come back to maybe to growth in Europe. But the other part of the Great rotation is also the patriotic side of it. So, for example, you've probably been following the debate in the UK about the extent to which pension funds, for example, should be obliged to invest in UK assets, and the extent to which people who have money inside a tax wrapper in the UK and ISO or whatever should be
obliged to invest in UK assets. And certainly this is something that has come up in France, this idea that it's ridiculous to be sending your productive capital of European countries to be invested in the US, and the sense that there should be some way to actively encourage, possibly even mandate the investing of European saves money inside the European Union as opposed to outside.
One preliminary comment and then the fundamental answer diogression. The preliminary comment is that it's very different to advise the issue in the UK and in Europe because within the European Union you can build relatively diversified portfolios. In a block of four hundred and fifty million people. With the list the second largest economy in the planet, you can
be the diversified portfolio across Europe. Since we cannot have it's forbidden by your open law, any forced allocation by country in any way whatsoever, then it could make sense at some point of time to consider incentives to invest some assets within the European Union without harming reasonable diversification.
I think it is more complicated in the UK, just because the UK economy is smaller, and therefore any force or incentivized allocation within the UK economy which would lead to a disproportionate concentration that you don't get when you can invest Acrossure. So that's a metastasis of Brexit or contradiction of brexit. You can take back control, but the more you reduce the size of the village, the more you end up into force incestuous relationships because the pool of assets is too small.
I don't think expectations ever to ask anyone for one hundred percent of par asses and a lot better take the diversification argument.
No, but that's why the debate is slightly different. But now because fundamentally more it's true that both in the UK and in the US, we are generating significant savings. More savings in the European continent than in the UK. You guys in the U kid have dept more than we do in the incontinent. So it's about between thirteen and eighteen percent of this posible income which is saved in the in the Europe. I don't know what other numbers in the UK should probably slightly round that or
maybe slightly lower. And most of these savings is exported in the form of investment in the US. Up until there, it makes perfect sense because the best thing you could do with your savings was to allocate a part of your savings to projects, whether it's growth, and for the past ten years it was growth in the US, so it was making perfect sense in the search of neal
to invest in the US. What became complicated is that when you combine the export of Europe and savings with the strength of the US equity markets, you get to the formation of huge in situations. I mean, very often people associate the success of the US economy to the innovation, the technology, energy, etc. And that's true, paliwel to an entrepreneurship and innovation. Technology is one leg of the US success.
The other leg that nobody talks about enough is the fact that the success of the US economy is driven by the size of their pension savings. For everyone in the US, if you want to have some income when you are old, you need to buy shares when you are young. In Europe, when you want to have some income when you are old, you just need to hope that people around you continue to pay taxes and social contributions.
So you get to a situation with some nuances in the UK, but with the strength of your corporate pension well and.
Also our order and Roman system, so you know, we have a new vast sum of capital rising up in our auto.
Large by and large many difference between a location of savings in the US and in the in Europe is the dominance of pension savings in the US that feeds long term defered liquidity instruments that are equity, and that what has created large companies like like Clarge, players like Black Hog, Van Guard, Felity, etcetera. So those guys then themselves work on diversification or strategical location and look at Europe. So the import they manage a mixed pool of European
savings exported to the US. Local savings collected from the US auseholds and this combined pool is partly invested in Europe. So that's why we have this paraducts of the US players bumping a lot of savings from Europe and exposing a lot of equity within European company.
Yeah, and then you have European savers savings captain cash.
Absolutely because we don't have the incentives to prepare for retirement with instruments that produce a better yield than cash and then which go with defer equidity that you can don't have with cash.
So if you wanted to incentivize European savers to invest, you should slash the size of the welfare states significantly so that faced into it.
I would not go that far. That's the intellectually pure conclusion, but clearly you should have an incentive set of incentives in some country have it. And by the way, because the European Union, I mean, these pension arrangements are our member states level. I mean the UK when it was part of the European Union as at the moret soficing indeendon pension schemes many.
Cos we also had one of the highest highest rates of pension savings to GDP, which some people suggested there was a jolly good reason to live in a hurry.
My point is that it was not incompatible with being member of the European Union. So since you left, we have other countries with a significant share of GDP in pensions funds, like Sweden, Netherlands and Denmark. So member states have to address exactly the point you are making, which is, if I incentivize people to invest in pension funds, does it create a risk of pumping out resources for the pair as you go state? Isn't such the first political
problem that ever country as to address. There is another one which is less visible, but which is very fundamental, is that most European countries, not all of them, but many of them. It's not for the gest of on in Sweden, with the case of Italy, Spain, Frances have incentives directly or indirectly to incentivize people to buy sovereign debt, so the liquidity of the central debt is usually encouraged
by all sorts of tax incentives. Now, clearly the reason why people keep cash or cause it cash is because they have they are offered protected liquidity and protectly yield instruments. Who to GOVI is if you want people to swep up their investments from govies to long term equity, then you adduce mechanically some of the equality of the sovereign debt and governments have to accept at to make an
arbit frunde. Do they want to bonsor or to support or to encourage the liquidity of their own debt or do they want to support encourage the equity funding and the growth of their companies and that in the in one case, if you want to encourage liquidity, the equity funding, the risk taking capabilities of your companies, you encourage pension
funds and long term equity investments. If you want to encourage to facilitate the liquidity of your debt, then you put all sorts of incentives for people to buy govies. And this is another debate, the arbitwie between equity for companies or money for gobies to find death, which is complementary to the for debate, which is pensions, individual saving buses that pully solidity skills.
Part of what's happening as a result of this conversation is this promotion of the European Savings and Investment Union or the what was the European Capital Markets Union, and that is going to work to do exactly as you say, to take all this counts and deploy it one way or another into European equities in the main. Is that what that's designed to do, and that should be another another boost to European acquities across the board that inflow of capital.
Yeah. I mean, the reason why there was there's a waking up is the multiple reason why the this saving investment Union is going to happen. Since we're talking to UK audience, I really want to explain why we are where we are and why the Capital Market Union stopped and did not deliver for the past ten years. The Capital Market Union was a very smart idea of Jonathan Hill when he was the UK Commissioner at the European Union.
And at that time the idea was very simple, was to accelerate the integration of European capital markets because it was going to be good for Europe, but it was going to become excellent for London because at that time London was the largest financial center of the European Union and it was making plenty of sense. I mean, the Agricultural common Policy in the sixties and seventies was all about building food sovereignty for Europe, and it was a French project because it was good for Europe and it
was good for friends. So you achieve a lot in Europe when there is a country that is a leader. Now, when the UK people, the British people, decided to leave you and Jonathan Hill left the Commission, the leadership to build the Captain Market Union evaporated, and honestly, for the past ten years or so, since let's say, the referendum of June sixteen and the departure of the UK, there
was no leader or sponsor of the project. And since the UK decided that London would not be anymore than the largest financial center of the European Union, but will become the largest financial center of the United Kingdom, the situation has been proven. We are now in the stitution which is totally different. The Regi Report, the Letter Report, the sort of various wake up calls about the fact that we need to finance equity in Europe. Long term project,
climate change, defense, the armament. All that requires a lot of equity. Is pushing for an acceleration of the capital mortgaging and the re assessment of priorities isn't going and I do believe that we are going to deliver very quickly in dius levels. Single supervision will happen and that will be a game changer because when rules are similar
across Europe now as they are, they remain different. So the only way to have the same rules is to go for same interpretation of same rules through a single provision,
and that will happen. Clearly, the new assessment of what are the best incentives for pension funds, even if three mans a member state level, there will be some form of harmonization and you can you should expect that the combination of Member states decisions with the European decision is going to create a station where five years from now the amount of would be massively more important. Is today actually the German the government has announced that they will
launch a program. Under the previous government, they had already launched it and it was interrupted by the stamp elections and it is being renewed by the new coalition. So you will have significant progress. It's like everything in Europe. It is slow, because that's that's the nature of our project. We are better at reacting than the net acting. But even if it is slow, it will happen. The European Union is a Jesl car, so it takes time to get to full speed. But you know, shang gun irrasc
the euro currency. So I remember all the bashing about the euro during a great financial crisis ten years ago, and we made it through. And I think the setting in the spentnion will happen. But it's it's going to be complicated it I was referring to the UK leadership that disappear in Europe. You have some countries that make finance and you have some countries that just buy finance.
The point here is that we are at a moment where the momentum for the capital market union is definitely accelerating. I spent a lot of time in Brussels. I can tell you that the dynamic the ownership by political leaders to make it happen. Mister Merth in Germany, you know, mister Merth spended many years of his life at black Hawk and many years of his life in the board of Deutche Boxa. The leader of Germany is very personally focused on financial issues. The same in France, the same
in the Lands. So we are on the right track to make it happen and Stepan.
It's one of the motivations here possible from Germany in particular, it's one of the motivations to produce a pool of cant available for spending on defense. One of the things that you said recently is that we should, you know, we should look at ESG in the traditional sense, that we should also you know, look at it in a different way and say es G. And we've talked about
this a lot on this podcast as well. ESG should now stand for energy security geostrategy, so a modern definition that is also about well being, long term well being being of a population. So one of the motivations behind providing this pool of cash is that it does go into defense.
Absolutely, I mean we and that that's the point for which the alignment with with the with the UK is essential and is perfect I mean clearly in the environment we are facing and the countries that have a tradition of building strength, of the projecting strength, of managing strength is quite something common between the between the between the UK and if you can't really like friends Norway is we don't exactly so so I think we are all
facing the same issues. Uh, armament projects at a very low return on investment, a very low return on equity, so you need you need equity to fund this project. You need money for the government to pay as clients, so they will need some debt issue will have to be addressed to some public finance issues will have to buildreated on the client side, but on the maker side, on the supplier science, if you want to accelerate production capabilities, if you want to accelerate innovation, if you want to
consolidate the players, you need more equity. So that that that that's why this concept of investing in the sovereignty, the open sovereignty of energy Situti and Joe strategy is getting your tractions with industries.
Okay, Stephan, we are running out of time, so can I just ask you a couple of quick questions. That's something Is AI impacting your business at all? Yet I finding that the way you employ and the way that you manage is changing result being able to use it.
Yes, yes, it does mainly on like many companies, many on the cost sign where we are reassessing many of our workflows and processes to wear eyes. It's not going to cure cancer, it's not going to to do everything. It's not magic. So on the revenue side we are more cautious because many of the things we are not transformed by eye. But on the class side, on the process sides, definitely has a very significantly.
Pay And how do you feel about cryptters and asset class skepticism?
This is typically a situation where I prefer to be late rather than be wrong. If the rest of the world two to play with matches and get to a situation where they they are comfortable with with these new instruments. I believe that exchanges, market infrastructures are full of trust from the general public, and I just don't want to be the shop around the corner with the window the day everyone realizes that there is an issue. There are
too much assumptions, religious assumptions behind this. I said, class that need me to be skeptical for the moment? Fair enough?
And finally, what are you reading at the moment?
You know it's a good question because I have one or beyond in my life. I read one history book per week. So I read a book from an Australian writer and I read in French because it's more pleasant for me. His name is Clark. He has published a few months ago a book called eighteen forty eight, which is all about the consolidation of the revolutionary trends or movements across Europe in eighteen forty eight. Yeah, thank you very much.
I've been reading A. Clark's book as well, by the way, and I think everyone should read it at the moment. It's quite it resonates quite well with our current world. Yes, thank you very much, indeed for joining us. Thank you man, thanks for listening to this week's Marin Talks Money. If you like our show, rate review and subscribe wherever you listen to podcasts, and keep sending questions or comments to
Marrin Money at Bloomberg dot net. You can also follow me in John on Twitter or x I'm at marinas w and John is John Underscore Stepic. This episode was hosted by Meet Marin Zumzetweb. Its produced by Somersardi Moses and Amantala Amadi. Sound designed by Kelly Gary and special thanks of course, as always to Stefan Ba