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Amundi Investment Talks 13
Amundi Institute, Investment Talks
Thursday, June 4th 11:00am (CET)
Our Specialists on Credit, Valentine Ainouz and Gregoire Pesques, assess the current market conditions in global credit and how to get the most out of the first steps on the road to recovery.
SPEAKERS:
Valentine Ainouz - Deputy Head of Developed Market Strategy Research
Gregoire Pesques - Head of Global Credit
Dear All,
Thank you for joining the Amundi Investment Talks Call.
The key takeaways are outlined below.
Key Takeaways
Covid-19 crisis caused a global macro shock
The coronavirus outbreak disrupted economies in the US and elsewhere as shown by lower-than-expected economic data and a deteriorating labour market. While Q1 GDP contracted in the US, the Eurozone (EZ) and China, there was a variation in the contraction which is explained by the timing of the outbreak. In EZ and US, Q1 was partially impacted by coronavirus, but the downturn in April and May shows that the effect on Q2 economic growth may be worse. We believe the path to recovery will be a long U and expect that the economies may not reach pre-crisis levels before 2022. Concerns over potential long-term damage to economies and rising default rates remain, but we believe economic indicators suggest that we may have reached a bottom.
Market reaction was acute, policy response swift
Markets reacted with a rapid sell-off as US IG and HY spreads widened. This is a big difference from the 2008 crisis. US credit markets underperformed EUR because of high leverage in the US and because EUR credit markets were supported by an active central bank. The response of governments and central banks has been huge and unprecedented as we see strong coordination between fiscal and monetary policies. On the one hand, governments are prepared to run record deficits, on the other, central banks are buying assets at a pace never seen before. In Europe, the ECB’s latest move to increase the PEPP by €600 billion indicates the continued “whatever is necessary” approach. In the US, the Fed is supporting corporate debt markets, both primary and secondary, and is buying IG as well as HY debt (fallen angels).
Credit markets will remain fragmented; focus on quality is crucial
From a portfolio perspective, in our view the most important task right now is to restore liquidity and be aware of credit solvency risk. We expect markets to normalise as economies are opening-up and leading indicators suggest a bottoming out. Still, we believe there are four key factors to watch – firstly, a low-yield environment will persist and investors will continue to search for yield. Secondly, we believe we will see rising default rates and corporate debt market become fragmented but IG and BB1 will remain a potential sweet spot. Third, investors could look for opportunities in global IG because it offers the flexibility to move across regions from the US, to Europe and Asia. Finally, we believe there are selective opportunities in the subordinated debt segment.
IMPORTANT INFORMATION
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.
1 Ratings are based on Moody's Investor Service, the Standard & Poor's or Fitch as applicable.
