hongkongzh
Credit outlook: ‘If I have to make a tackle, I’ve already made a mistake’

Credit outlook: ‘If I have to make a tackle, I’ve already made a mistake’

29-03-2022 | 每季展望

The Fed may have made a policy mistake by starting this tightening cycle too late. One of the key risks we face is higher-than-anticipated hikes in the coming months.

  • Victor  Verberk
    Victor
    Verberk
    CIO Fixed Income and Sustainability
  • James Stuttard
    James
    Stuttard
    Head of Global Macro team and Portfolio Manager
  • Sander  Bus
    Sander
    Bus
    Co-head Credit team

Speed read

  • Fundamentals have deteriorated; the range of outcomes has broadened
  • Valuations never stay at average levels, but they do reflect some risk now
  • Technicals are weak since central banks need to correct quickly on inflation

Making an economic assessment had been difficult even before the escalation of the Russia-Ukraine crisis, given the distortion in many data series after two years of Covid. This was why we entitled our previous Credit Quarterly Outlook ‘Imperfect information and imperfect foresight’. “With the Ukrainian conflict, higher oil prices and further supply chain disruptions, it is clear that an even wider set of possibilities has to be assessed for fundamentals. If anything, downside risks to the economy have risen materially and recession risk is now openly debated,” says Victor Verberk, Co-head of the Robeco Credit team.

Regarding valuations, markets have cheapened up significantly since our Outlook in early December. The compensation for liquidity risk has risen a lot, as is also reflected by wider European swap spreads.

On technicals, our main worry is that developed market central banks are behind the curve. We think the Fed made a clear policy mistake by starting this tightening cycle too late. The key risks here are higher-than-anticipated hikes in the coming months, and inflation that not only lasts longer but peaks out at higher levels. This situation is akin to the Italian football player Paolo Maldini stating that when your defensive tactics don’t anticipate future risks ahead of time, you have to take an emergency measure (that is, tackle).

All in all, we are accepting betas that are a touch higher for investment grade credit. We do not mind if betas are just above one, while we remain in the first quartile of our risk budget. For high yield, the US market in particular has already started reflecting some optimism again, and trades too tight in our opinion. This means we like to stick to our underweight beta positioning overall, despite the fact that European high yield credit spreads have cheapened up in recent months.

透過電郵月報緊貼信貸投資的最新發展
透過電郵月報緊貼信貸投資的最新發展
訂閱

A humanitarian disaster

“Let us first express our sympathy to all victims of the unjustified war in Ukraine,” says Verberk. “A humanitarian disaster is unfolding that far exceeds any relevance that our regular Credit Quarterly Outlook might have. This is our job, though, and we will therefore focus as usual on a cold financial assessment of the situation, in order to be positioned correctly on behalf of our clients.”

The European economy will be hit hard by this crisis. Europe faces supply chain issues and is of course highly dependent on energy from Russia, besides agricultural commodities from Ukraine.

The US economy, despite being less than two years into a recovery, is already in overheating territory. The labor market has largely healed and this part of the Fed’s job is done. Wage growth has started to broaden out. It seems that the key question for everyone in the policy and market community is the inflation trajectory.

A few words on China are warranted, too. “We have been worried about the sustainability of this debt-fueled economic growth ‘miracle’ for some time,” says Sander Bus, Co-head of the Robeco Credit team. “It is clear to us that this economic miracle has come to an end. More debt will not help in meeting the 5.5% growth target without simultaneously compromising Beijing’s macroprudential concerns. The demise of the real estate sector is a symptom of capital misallocation and of a system which is overleveraged. Because social stability remains the overarching objective for Beijing, stimulus will likely come in some shape or form.”

Inflation that is too high to ignore

So, what is the impact of the higher oil and gas prices? “As my colleague Martin van Vliet has highlighted, sharply higher oil prices can cost about 3% of GDP growth over a multi-year period,” says Jamie Stuttard, Robeco Credit Strategist. “So, the energy shock is clearly a tax on growth, besides its inflationary effects on headline inflation. This puts central banks in an awkward position. Inflation simply is too high to ignore and the Fed has to react, given their inflation mandate. Therefore, a quick series of rate hikes is likely to occur in a short period of time, with balance sheet tightening thrown in for good measure, potentially hurting economic growth.”

We are aware that both the rate cycle and the oil shock can trigger a recession. We think the likelihood is reasonably large, and it has certainly increased.

As US economists Larry Summers and Alex Domash pointed out, when inflation is above 4 or 5% and unemployment also below 5%, in a large majority of cases historically, the business cycle ends in a hard landing. Central banks will put on the brakes; they have few good choices.

Valuations have adjusted

We spent a lot of time digesting the relative value of current credit markets. In our analysis, the end of QE and the expectation of the start of QT in the coming months is now reflected in market prices and in credit spreads. We refer to this as the ‘2018’ scenario. But there are also a few scenarios that have not been priced yet.

First, 1970s-style inflationary and recessionary consequences from the current oil price shock might not materialize, but the comparability of the supply-driven oil shock currently unfolding makes us alert to the possibility of a bigger slowdown and spread reaction.

Second, we are not so certain that a Russian default, which would in nominal terms be one of the biggest in history, could be dismissed as being fully priced in risk premia.

Third, 5.5% economic growth in China looks increasingly unlikely to us. Given that China has provided over 50% of the marginal contribution to global GDP growth in the past decade, this scenario might also cause disappointment.

The conclusion for valuations is that spreads are around median levels again, which is wider than at any time in the past seven quarters. For this reason we no longer want to be short risk, although we need a bigger risk premium to take a long risk position. We focus on stock picking, sector choices and regional differences in the composition of spreads.

Market cycle | Mapping our view on market segments

Source: Robeco, March 2022

Watch the technicals

The technicals debate in our Quarterly Outlook session was one of the most interesting in years. We talked about the fear of much more front-loaded central bank action, the signals of an inverted curve and many geopolitical events.

Oil shocks tend to be met with a tighter central bank policy response, and oil shocks as well as sustained rate tightening cycles historically precede recessions. The risks to growth are especially acute when oil shocks are exogeneous supply-side events instead of demand-side shocks: the odds are not looking very good.

Further, since central banks have provided vast amounts of liquidity, one should not be surprised that the withdrawal of liquidity leads to more volatility. This is a very awkward time for central banks to be withdrawing liquidity, but inflation once again leaves them with little alternative.

Staying cautious

All in all, valuations suggest a somewhat more constructive stance to credit markets. However, as Maldini once said, “if you have to make a tackle, you have already made a mistake”. We still are a touch cautious in managing these allocations, since tail risks are around the corner and the full extent of the oil shock remains to be seen.

Leave your details and download the publication

聲明

本人接受荷寶的責任聲明 ,並同意荷寶出於私隱政策所列的收集和使用個人資料的目的(包括用於直接推廣荷寶的產品或服務),而收集和使用本人的個人資料。

Important information

The contents of this document have not been reviewed by any regulatory authority in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the Securities and Futures Commission in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.

Logo

免責聲明

1. 一般事項

請細閱以下資料。 

此網站由Robeco Hong Kong Limited(「荷寶」)擬備及刊發,荷寶是獲香港證券及期貨事務監察委員會發牌從事第1類(證券交易)、第4類(就證券提供意見)及第9類(資產管理)受規管活動的企業。荷寶不持有客戶資產,並受到發牌條件所規限。荷寶在擴展至零售業務之前,必須先得到證監會的批准。本網頁未經證券及期貨事務監察委員會或香港的任何監管當局審閱。

2. 風險披露聲明

Robeco Capital Growth Funds以其特定的投資政策或其他特徵作識別,請小心閱讀有關Robeco Capital Growth Funds的風險:

  • 部份基金可涉及投資、市場、股票投資、流動性、交易對手、證券借貸及外幣風險及小型及/或中型公司的相關風險。
  • 部份基金所涉及投資於新興市場的風險包括政治、經濟、法律、規管、市場、結算、執行交易、交易對手及貨幣風險。
  • 部份基金可透過合格境外機構投資者("QFII")及/或 人民幣合格境外機構投資者 ("RQFII")及/或 滬港通計劃直接投資於中國A股,當中涉及額外的結算、規管、營運、交易對手及流動性風險。
  • 就分派股息類別,部份基金可能從資本中作出股息分派。股息分派若直接從資本中撥付,這代表投資者獲付還或提取原有投資本金的部份金額或原有投資應佔的任何資本收益,該等分派可能導致基金的每股資產淨值即時減少。
  • 部份基金投資可能集中在單一地區/單一國家/相同行業及/或相同主題營運。 因此,基金的價值可能會較為波動。
  • 部份基金使用的任何量化技巧可能無效,可能對基金的價值構成不利影響。
  • 除了投資、市場、流動性、交易對手、證券借貸、(反向)回購協議及外幣風險,部份基金可涉及定息收入投資有關的風險包括信貨風險、利率風險、可換股債券的風險、資產抵押證券的的風險、投資於非投資級別或不獲評級證券的風險及投資於未達投資級別主權證券的風險。
  • 部份基金可大量運用金融衍生工具。荷寶環球消費新趨勢股票可為對沖目的及為有效投資組合管理而運用金融衍生工具。運用金融衍生工具可涉及較高的交易對手、流通性及估值的風險。在不利的情況下,部份基金可能會因為使用金融衍生工具而承受重大虧損(甚至損失基金資產的全部)。
  • 荷寶歐洲高收益債券可涉及投資歐元區的風險。
  • 投資者在Robeco Capital Growth Funds的投資有可能大幅虧損。投資者應該參閱Robeco Capital Growth Funds之銷售文件內的資料﹙包括潛在風險﹚,而不應只根據這文件內的資料而作出投資。

3. 當地的法律及銷售限制

此網站僅供“專業投資者”進接(其定義根據香港法律《證券及期貨條例》(第571章)和/或《證券及期貨(專業投資者)規則》(第571D章)所載)。此網站並非以在禁止刊發或提供此網站(基於該人士的國籍、居住地或其他原因)的任何司法管轄區內的任何人士為對象。受該等禁例限制的人士或並非上述訂明的人士不得登入此網站。登入此網站的人士需注意,他們有責任遵守所有當地法例及法規。一經登入此網站及其任何網頁,即確認閣下已同意並理解以下使用條款及法律資料。若閣下不同意以下條款及條件,不得登入此網站及其任何網頁。

此網站所載的資料僅供資料參考用途。

在此網站發表的任何資料或意見,概不構成購買、出售或銷售任何投資,參與任何其他交易或提供任何投資建議或服務的招攬、要約或建議。此網站所載的資料並不構成投資意見或建議,擬備時並無考慮可能取得此網站的任何特定人士的個別目標、財務狀況或需要。投資於荷寶產品前,必須先細閱相關的法律文件,例如管理法規、基金章程、最新的年度及半年度報告,所有該等文件可於www.robeco.com/hk/zh免費下載,亦可向荷寶於香港的辦事處免費索取。 

4. 使用此網站

有關資料建基於特定時間適用的若干假設、資料及條件,可隨時更改,毋需另行通知。儘管荷寶旨在提供準確、完整及最新的資料,並獲取自相信為可靠的資料來源,但概不就該等資料的準確性或完整性作出明示或暗示的保證或聲明。 

登入此網站的人士需為其資料的選擇和使用負責。 

5. 投資表現

概不保證將可達到任何投資產品的投資目標。並不就任何投資產品的表現或投資回報作出陳述或承諾。閣下的投資價值可能反覆波動。荷寶投資產品的資產價值可能亦會因投資政策及/或金融市場的發展而反覆波動。過去所得的業績並不保證未來回報。此網站所載的往績、預估或預測不應被視為未來表現的指示或保證,概不就未來表現作出任何明示或暗示的陳述或保證。基金的表現數據以月底的交易價格為基礎,並以總回報基礎及股息再作投資計算。對比基準的回報數據顯示未計管理及/或表現費前的投資管理業績;基金回報包括股息再作投資,並以基準估值時的價格及匯率計算的資產淨值為基礎。 

投資涉及風險。往績並非未來表現的指引。準投資者在作出任何投資決定前,應細閱相關發售文件所載的條款及條件,特別是投資政策及風險因素。投資者應確保其完全明白與基金相關的風險,並應考慮其投資目標及風險承受程度。投資者應注意,基金股份的價格及收益(如有)可能反覆波動,並可能在短時間內大幅變動,投資者或無法取回其投資於基金的金額。若有任何疑問,請諮詢獨立財務及有關專家的意見。 

6. 第三者網站

本網站含有來自第三方的資料或第三方經營的網站連結,而其中部分該等公司與荷寶沒有任何聯繫。跟隨連結登入任何其他此網站以外的網頁或第三方網站的風險,應由跟隨該連結的人士自行承擔。荷寶並無審閱此網站所連結或提述的任何網站,概不就該等網站的內容或所提供的產品、服務或其他項目作出推許或負上任何責任。荷寶概不就使用或依賴第三方網站所載的資料而導致的任何虧損或損毀負上法侓責任,包括(但不限於)任何虧損或利益或任何其他直接或間接的損毀。 此網站以外的網頁或第三方網站皆旨在作參考之用。

7. 責任限制

荷寶及(潛在的)其他網站資料供應商概不就此網站內容或其所載的資料或建議負責,而該等內容、資料或建議可予更改,毋需另行通知。 

荷寶並無責任確保及保證此網站的功能將不受干擾或並無失誤。荷寶概不就有關荷寶(交易)服務電郵訊息的後果承擔任何責任,該等電郵訊息可能無法接收或發出、損毀、不正確接收或發出或並無準時接收或發出。 

荷寶亦不就因登入及使用此網站而可能導致的任何虧損或損毀負責。 

8. 知識產權

所有版權、專利、知識產權和其他財產,以及有關此網站資料的授權均由荷寶持有及獲取。該等權利不會轉授予查閱有關資料的人士。 

9. 私隠

荷寶保證將會根據現行的資料保障法例,以保密方式處理登入此網站的人士的數據。除非荷寶需按法律責任行事,否則在未經登入此網站的人士許可,不會向第三方提供該等數據。 請於我們的私隱及Cookie政策 中查找更多詳情。 

10. 適用法律

此網站受香港法律監管及據此解釋。因此網站導致或有關此網站的所有爭議應交由香港法庭作出專有裁決。  

如果您已閱讀並理解本頁並同意上述免責聲明以及同意荷寶收集和使用您的個人資料,用於私隱及Cookie政策 所列的收集和使用個人資料的目的(包括用於直接推廣荷寶的產品或服務),請點擊“我同意”按鈕。否則,請點擊“我不同意”離開本網站。

我不同意