hongkongzh
Credit outlook: The mess after the largesse

Credit outlook: The mess after the largesse

28-06-2022 | 投資觀點
We have seen a very significant repricing of fixed income, but panic and volatility can also provide opportunities.
  • Sander  Bus
    Sander
    Bus
    Co-head Credit team
  • James Stuttard
    James
    Stuttard
    Head of Global Macro team and Portfolio Manager
  • Victor  Verberk
    Victor
    Verberk
    CIO Fixed Income and Sustainability

Speed read

  • Inflationary pressure has accelerated and risks to growth are increasing
  • A horrendous start to the year has resulted in much improved valuations
  • Debt levels have never been higher and the safety net has been removed

US Treasuries this year had their worst January-to-April period since 1788. On top of that, credit spreads widened. By all standards, we have seen a very significant repricing of fixed income. The world looks grim and it would be easy to extrapolate the bear market. But panic and volatility can also provide opportunities.

We already see a few pockets of the market that are starting to look attractive. Investment grade looks cheap at these levels and investors able to withstand the volatility and who are prepared to take a longer investment horizon could start buying. High yield is not there yet, although we believe that the quality names in high yield already look attractive.

How did the world get into this mess? “The policy response to Covid-19 seemed like a great cure during the health crisis, but the combination of massive fiscal and monetary stimulus now turns out to have been an over-extension of an era of largesse that is one of the key ingredients for the disease called inflation,” says Sander Bus, Co-head of Robeco’s Credit team.

訂閲荷寳月報,獲取最新投資觀點
訂閲荷寳月報,獲取最新投資觀點
訂閱

Trouble ahead

While many parts of the economy are still red-hot, leading indicators are increasingly pointing to recession risk. Consumer confidence, producer confidence, inverted yield curves and housing affordability all indicate that trouble is coming. This should not be a surprise given the aggressive monetary tightening that we are now seeing in response to raging inflation.

Central banks currently have no option other than to tighten financial conditions further in order to slow their economies and restore the demand-supply balance. Clear evidence of inflation coming down is needed before they can stop tightening. The chances that inflation pressures would somehow simply disappear of their own accord are slim.

That had been what policymakers hoped for when they still used the word ‘transitory’ in 2021. But the ‘t’ word has been long canceled. “If history since 1955 is a guide, we have to conclude, as Larry Summers and Alex Domash first posited, that from current levels of inflation and labor market overheating, Fed tightening has always resulted in a recession,” says Jamie Stuttard, Robeco Credit Strategist.

Inflation is overshooting

Inflation is overshooting in the US and in Europe, while it remains a bit more moderate in China. In the US, it is most clear that the key trigger was excess fiscal stimulus at a time when the output gap had already closed. In Europe, there is also an element of too much fiscal spending, and on top of that a food and energy crisis on the back of the war in Ukraine, together with imported inflation via the foreign exchange channel.

Inflation has caused a shock to real incomes not seen in the US since the 1970s. This, coupled with the sharp tightening in financial conditions, with the fragile China macro backdrop to boot, implies a real risk of recession in our view. There are more parallels to the 1970s episode. Policymakers at that time also argued that inflation was transitory since it was initially triggered by external shocks.

Even though they were all temporary shocks, together they caused individuals to expect higher inflation, entrenching the inflationary dynamics further and contributing to a self-reinforcing spiral of wage-price inflation. We do not see inflation spiraling out of control yet, but it is a scenario that central banks are desperate to avoid, given this type of inflation can be very difficult to fight.

Healthy corporates, but check the debt levels

Corporate profit margins are at cyclical highs, which is not uncommon on the eve of an economic slowdown. Corporates enjoyed strong pricing power in 2020 and 2021, with supply constraints and government support helping to lift margins. Earnings are 20-40% above 2019 levels in all key regions.

One important element to judge corporate health is to look at companies’ interest rate sensitivity. Companies that have high gearing and a lot of floating-rate debt on the balance sheet are clearly more vulnerable.

For Europe, the situation is even more challenging given the gas squeeze and terms of trade developments that have lifted gas and electricity prices in euro terms to very elevated levels. The overhang of the energy crisis is negative for Europe but at the same time will constrain the ECB from lifting rates as aggressively as the Fed.

Since we have overweight positions in European banks and many clients have the global financial crisis still top of mind, we think we should make some remarks about this segment. During Covid, a substantial amount of SME credit risk was shifted from bank balance sheets to government entities via the use of state-backed loans. This tool was used mainly in southern Europe, with Italy now having more than 10% of GDP in state-backed loans.

This means that when defaults increase, banks are partly shielded as some losses will end up at the government. According to Victor Verberk, Co-head of the Robeco Credit team, “We conclude that healthy capital positions and probably lower credit losses compared to earlier episodes of economic stress should help banks to weather the storm. We feel comfortable that banks will not be the epicenter of stress in the next recession”.

Valuations are becoming more attractive

Spreads on all segments of the credit market are now undoubtedly above median spreads. Euro investment grade and Euro high yield have even reached top quartile.

Market cycle | Mapping our view on market segments

Source: Robeco, June 2022

For investment grade, we have reached levels where we feel comfortable running portfolio betas just above 1. For high yield and emerging debt portfolios we have reduced the underweight beta as well, but are not yet in positive territory for all portfolios.

We are more cautious on high yield than on investment grade. The ratio between high yield and investment grade spreads is tight by historical standards, which leaves room for underperformance of high yield on a risk-adjusted basis. “We believe that the lower end of the credit spectrum is particularly vulnerable. A recession will increase idiosyncratic risk and dispersion in this segment. This is still insufficiently priced,” says Bus.

The technicals are tough

Central bank policy is clearly the dominant driver of asset prices this year. There is much uncertainty about the amount of monetary tightening required to achieve price stability and a return of inflation rates back down to mandated targets, without overshooting into deflation. This uncertainty is creating very high volatility in fixed income markets.

During the sell-off this year we saw days that reminded us of March 2020 and September 2008, with very poor liquidity conditions. It is also a reminder that investment bank balance sheets are not the same as before the global financial crisis. More regulation, more stringent risk management and a lower appetite for physical inventory means investment banks are unable to act as a shock absorber.

This is why we see liquidity rapidly deteriorating in markets where everyone is looking for the exit. “It once again stresses the importance of being contrarian in these markets,” says Verberk. “One can be wrongfooted by aggressive bear market rallies and should try to take risk when most people let go – and vice versa. Market liquidity is very fragile, and one should use that to your benefit.”

Conclusion

All in all, valuations suggest a somewhat more constructive stance to credit markets, but at the same time fundamentals and technicals are still weak. During QE we learnt not to fight the Fed – and the same holds this time around during tightening. The Fed is combatting inflation, and market weakness is collateral damage that they are accepting. Spreads could very well widen even more, at which point we will consider increasing the beta further.

“Recession risk has increased and the market has moved towards that scenario as well,” says Bus. “Nevertheless, we are not yet in the phase of capitulation and unjustified cheapness. These opportunities might very well occur in the next three to six months.“

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