Investment Manager Views Show Strong Consensus as Credit Cycle Ages


Tuesday, March 20, 2018 /01:31 PM / Fitch Ratings 

Fitch Ratings says that its global rating outlooks have moved to their most positive level since the financial crisis. However, the net bias is only just over 1% and occurs as the world is about to hit peak growth in the current cycle. In this context, investment managers show a high degree of consensus, both in terms of their credit investment outlooks and their views on the current late stage of a prolonged credit cycle.

Fitch forecasts a moderate increase in global growth to 3.3% in 2018, which is consistent with investment managers' broadly positive macroeconomic outlook. However, risks outside the base case remain: political and geopolitical risks dominate investment managers' downside risk scenarios. While rising inflation is broadly assumed - and priced in - investment managers recognise that increases in the rate of inflation beyond the base case are a key sensitivity for fixed income.

Fitch and most investment managers correctly anticipated rising inflation in 2017. Investors agreed, with fixed income funds that invested in linkers registering some of the strongest relative inflows in 2017. Fitch forecasts accelerating inflation in all major markets apart from the UK in 2018, a view investment managers broadly share.

Strong fundamentals underpin tight credit spreads; however, almost all investment managers forecast spread widening, greatest, in both relative and absolute terms, in high yield. Investment managers express an allocation preference to high-yield and emerging-market debt over investment-grade credit, despite anticipating high absolute and relative high-yield spread widening.

Fitch's report, Investment Manager Credit Views: Key Themes for 2018, published today synthesises the views expressed by leading investment managers and compares and contrasts those views with the credit outlooks published across Fitch's analytical groups. Fitch reviewed published 2018 credit outlooks from 15 major investment managers (with combined assets under management of approximately USD18 trillion as of end-December 2016).

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