Fitch: China and Commodity Concerns Shape Australian Investor Sentiment
Volatile commodity and equity prices, lower growth in China and the prospect of US interest rate rises are all weighing on investors' views. More than 50% of investors expect spreads will widen over the next 12 months, most notably within the financial, non-financial corporate and structured finance asset classes.
Investors believe a downturn in China poses the greatest risk to credit markets over the next 12 months, and have held this view across all four Australian surveys conducted to date. Concern over the impact of a China hard landing is mounting with some 68% of investors now identifying it as a high risk to Australian credit markets, compared to around 40% in the previous three surveys.
Investor sentiment has shifted noticeably towards the prospect of tighter lending conditions, with regulatory vigilance and a weak economic outlook likely to shape expectations. Interestingly, there continues to be a clear expectation towards rising corporate leverage, although with less conviction compared to previous surveys. Respondents also believe that Australia's property market poses the greatest risk to bank credit quality, with 44% rating the property market as a critical risk, compared to 26% in our 2Q15 survey.
A domestic housing market downturn fell just outside of the top three risks to Australian credit markets in this latest survey. Investors don't see a downturn as an imminent risk, however they also don't believe that strong price growth will continue and accommodative monetary policy settings are necessary over the next 12 months. This represents a noticeable shift in sentiment over the past 12 months, as not one investor participating in our 4Q14 survey thought rates would be lowered in the 12 months to follow.
Fitch's 4Q15 survey was conducted between 31 August and 13 September 2015, representing the views of managers of more than AUD200bn of fixed income assets which accounts for over three-quarters of the Australian domestic real-money market. This survey is unique in the Australian context, reflecting the partners' strong ties with the local investor community.
The full survey is available at www.fitchratings.com.