The most recent March 2009 edition of Fitch Ratings’ quarterly “European Senior Credit Investor Survey” shows some improvement in sentiment towards risk in corporate credit, or at least the mood is less negative. Although the recession is anticipated to last longer in some key regions, asset class conditions are viewed as slightly better by respondents to the latest edition of the quarterly survey.
“Overall respondents are less pessimistic than in December 2008 and fundamental credit concerns have lessened, albeit to a minor degree,” said Trevor Pitman, Fitch’s Regional Credit Officer for Europe and Asia.
In December 2008, 90 percent of investors said that speculative grade corporate credit conditions would deteriorate significantly, but in the March 2009 survey, only 46 percent believe that conditions will deteriorate significantly, with 29 percent believing they will deteriorate somewhat.
In the previous survey, 70 percent of investors believed that credit conditions for European financial institutions would deteriorate either significantly or somewhat. This time, no investors believed that they would deteriorate significantly and 46 percent believed some deterioration is possible.
An overwhelming majority of respondents are confident that major developed economy governments will fully support the senior debt obligations of all systemically important banks. Nearly 90 percent of investors believe this.
In most structured finance asset classes, fewer investors believe that fundamental credit conditions will deteriorate as sharply as in December. For example, asset backed securities’ conditions were anticipated to deteriorate significantly or somewhat by 73 percent a few months ago, but by 53 percent now. The percentage of investors believing that conditions will remain unchanged in this asset class is now 36 percent against 24 percent in December. Similar patterns are shown by the survey for RMBS, CMBS and CDOs. In all of those asset classes a majority of investors still anticipate that conditions will worsen, but to a lesser degree than in December.
In December the factors which over 50 percent of investors suggested could pose risks to the European credit markets were hedge fund failures, housing market disruptions and lack of credit to corporates. In these cases investors believed there was a high degree of risk posed by these factors. None of these areas received such a high risk assessment this time. The area of greatest “high” risk now is the availability of global liquidity, with 40 percent of investors perceiving this.
Fitch has extensively researched non-financial corporate liquidity since September 2007. This research has consistently shown that the overwhelming majority of Fitch-rated corporates in the ‘BBB’ and lower rating categories have sufficient liquidity to service indebtedness until the end of 2010.
Overall, the survey reflects to a great degree the economic information that has been reported lately in Europe, the U.S. and around the world: the crisis seems to be abating, but significant improvement is not on the horizon. Equity markets around the world have been rallying since March on this news. The most likely reason is that markets had priced in a total economic collapse, and now that things are “less bad,” market are bouncing back up to a level reflecting very slow economic, and thus earnings, growth. However, the continued expectation for some deterioration in the credit markets will likely put a cap on how high equity markets can go. Thus, it is imperative for equity investors to seek out sectors that have real growth potential, and then companies within those sectors that are best positioned to take advantage of growth.
European Credit Investors’ Sentiment Less Negative: Fitch Ratings
Posted by Gregg Killoren on May 29, 2009
The most recent March 2009 edition of Fitch Ratings’ quarterly “European Senior Credit Investor Survey” shows some improvement in sentiment towards risk in corporate credit, or at least the mood is less negative. Although the recession is anticipated to last longer in some key regions, asset class conditions are viewed as slightly better by respondents to the latest edition of the quarterly survey.
“Overall respondents are less pessimistic than in December 2008 and fundamental credit concerns have lessened, albeit to a minor degree,” said Trevor Pitman, Fitch’s Regional Credit Officer for Europe and Asia.
In December 2008, 90 percent of investors said that speculative grade corporate credit conditions would deteriorate significantly, but in the March 2009 survey, only 46 percent believe that conditions will deteriorate significantly, with 29 percent believing they will deteriorate somewhat.
In the previous survey, 70 percent of investors believed that credit conditions for European financial institutions would deteriorate either significantly or somewhat. This time, no investors believed that they would deteriorate significantly and 46 percent believed some deterioration is possible.
An overwhelming majority of respondents are confident that major developed economy governments will fully support the senior debt obligations of all systemically important banks. Nearly 90 percent of investors believe this.
In most structured finance asset classes, fewer investors believe that fundamental credit conditions will deteriorate as sharply as in December. For example, asset backed securities’ conditions were anticipated to deteriorate significantly or somewhat by 73 percent a few months ago, but by 53 percent now. The percentage of investors believing that conditions will remain unchanged in this asset class is now 36 percent against 24 percent in December. Similar patterns are shown by the survey for RMBS, CMBS and CDOs. In all of those asset classes a majority of investors still anticipate that conditions will worsen, but to a lesser degree than in December.
In December the factors which over 50 percent of investors suggested could pose risks to the European credit markets were hedge fund failures, housing market disruptions and lack of credit to corporates. In these cases investors believed there was a high degree of risk posed by these factors. None of these areas received such a high risk assessment this time. The area of greatest “high” risk now is the availability of global liquidity, with 40 percent of investors perceiving this.
Fitch has extensively researched non-financial corporate liquidity since September 2007. This research has consistently shown that the overwhelming majority of Fitch-rated corporates in the ‘BBB’ and lower rating categories have sufficient liquidity to service indebtedness until the end of 2010.
Overall, the survey reflects to a great degree the economic information that has been reported lately in Europe, the U.S. and around the world: the crisis seems to be abating, but significant improvement is not on the horizon. Equity markets around the world have been rallying since March on this news. The most likely reason is that markets had priced in a total economic collapse, and now that things are “less bad,” market are bouncing back up to a level reflecting very slow economic, and thus earnings, growth. However, the continued expectation for some deterioration in the credit markets will likely put a cap on how high equity markets can go. Thus, it is imperative for equity investors to seek out sectors that have real growth potential, and then companies within those sectors that are best positioned to take advantage of growth.
This entry was posted on May 29, 2009 at 6:44 am and is filed under Corporate Defaults, Credit Crisis, Economy, Market Commentary. Tagged: Corporate Credit, Credit Crisis, Economy, Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.