Amundi Investment Talks
Our Speaker - Valentine Ainouz and Gregoire Pesques
In this week's call, Valentine Ainouz and Gregoire Pesques
gives his views on some recent market events.
Thank you for joining the Amundi Investment Talks Call yesterday.
The key takeaways are outlined below.
Join us next Thursday, when we will be joined by Valentine Ainouz and Gregoire Pesques to round up the discussion on how The Road to Recovery Starts with Credit
Unusual Crisis Called for an Unusual Response
Weak economic growth data and spread tightening in markets present a contrasting picture.
While Q1 saw a sharp contraction in the US, Europe, and China, actual numbers among countries varied. This difference in GDP growth is mainly explained by the timing of the outbreak and subsequent lockdowns but the magnitude of the contraction is unusual. We believe this will not be a V-shaped recovery, and risks remain on the downside as a recovery path may be affected by a potential second wave and rise in default rates. Having said that, the policy response to deal with the crisis has also been unusual. Both in the US and the Eurozone, there has been a coordinated response between fiscal-monetary authorities and this has impacted IG market. The message from the Fed and the ECB is very clear that they will do more if needed.
Liquidity has Improved, but Complete Normalisation is Still far off.
March was a month when liquidity in credit markets dried-up, but as central banks intervened, April witnessed inflows in the EUR IG as well as HY markets. At the same time, investor demand has been strong in a very active primary market. Now, there are expectations from the ECB to increase the size of its PEPP and potentially include ‘fallen angels’ in its bond-buying, as done by the Fed. If that happens, we believe that it will be positive for the BB segment within HY, where default risks remain high. However, we believe investors should focus on three main characteristics to identify companies, which may survive the crisis – comfortable liquidity position, resilient business model and competitive position in its respective business sector.
Carry is Investors' Friend
Low sovereign yields will lead investors to continue their search for yield in credit, but the key difference from the past is that now we are in a rising default rate environment. So, search for yield should be complemented by the strong selection, focus on fundamentals and liquidity. Importantly, European companies entered the crisis with low leverage and comfortable cash positions while banks have high capital ratios. Therefore, high-quality EUR IG issuers will see strong demand. Selective opportunities exist in European banks, but we are cautious on cyclicals and sectors such as auto, leisure, and mining that are exposed to the Covid-19 outbreak. Overall, we believe investors should have a bottom-up approach instead of a top-down one.
This material is for Professional Clients only and is issued by Amundi Asset Management. Unless otherwise stated, all views expressed are those of Amundi Asset Management as at the date of publication. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Past performance does not guarantee and is not indicative of future results. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested. This material does not constitute investment advice or an offering of any investment fund shares or units and does not take account of the investment objectives or needs or suitability requirements of any specific investor.
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