OREANDA-NEWS. European investors expect companies to funnel their cash towards M&A in the coming year, while capex is seen as the lowest priority for corporate spending, according to Fitch Ratings' latest survey of senior credit investors.

Thirty-five percent of respondents to the survey said M&A would be a significant use for corporate cash in the next 12 months and 48% said it would be moderate. Only 3% expected a significant amount of spending on capex. Shareholder returns were also seen as secondary to M&A, with 15% of respondents saying spending on dividends would be significant and 8% saying the same for share buybacks.

The response supports Fitch's view that weak economic growth prospects mean European companies will see little incentive to invest for organic growth, but will seek acquisitions to boost revenue and reduce costs. We also expect M&A to be supported by continued easy access to cheap funding for investment grade issuers.

We expect EMEA corporates' cash spending on shareholder returns to be muted in 2016 as many companies prefer to focus their resources on acquisitions. The building materials and construction, gaming, pharmaceuticals, capital goods, and telecoms sectors could all see significant M&A activity in the next year, while weak oil prices and low company valuations have also created opportunities in the oil and gas industry.

If M&A opportunities dry up, shareholder returns could rise, especially as many corporates have strong liquidity and little incentive to repay low-coupon debt. This is most likely in the chemicals, aerospace and defence, and media and entertainment sectors, where significant consolidation has been underway for longer than other sectors.

Fitch's 4Q15 survey closed on 4 November and represents the views of managers of an estimated EUR7.5trn of fixed-income assets. We will publish the full results later this month.