Credit Market Research
www.fitchratings.com 25 May 2010
EMEA Special Report
European Senior Fixed Income Investor SurveyQ210
SovereignRefinancing ChallengesEscalate
Highlights
The results of Fitch Ratings’ latest survey of fixed income investors across Europe clearly capture therising worries about the euro zone. Conducted during April 2010, the survey preceded the EU/ECB/IMF support packageannounced on 10 May, which resulted in the faltering of the 14monthlong credit rally.
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Intensifying investor concerns regarding developedmarket sovereigns are expressed throughout the survey results.
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Respondents believed this bedrock asset class would have by far the biggest difficulty refinancing debt, against a backdropof an expected weakening in credit fundamentals due to rising budget deficits and debt. Survey participants signalled thatgovernments will face higher funding costs amid a rising concern over future defaults and losses.This pessimism contrasts sharply with the more generally enthusiastic outlook for most other asset classes. Credit profilesare anticipated to strengthen further, and confidence has grown over whether the losstaking is over. Investors perceive that
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commercial lending conditions will loosen further, except in the small and mediumsized enterprise (SME) segment.
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However, in a sign of the contagion risk of sovereign concerns, survey participants indicated that the broad spread
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tightening observed since mid2009 is reversing for most asset classes.
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The corporate sector is expected to continue to hoard cash and repay debt, and capex is viewed as a low priority. There isgreater conviction that companies will engage in merger and acquisition activity, although investors expect deals to befinanced by a mix of debt and equity, protecting credit profiles.Expectations have fallen for credit strength in financial institutions, driven partly by concerns relating to the impact of newregulation. At the same time, respondents became more bullish on the prospects of a loosening in the lending standards of commercial banks.
7038260110 20 40 60 80 100Sovereign developed market
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Sovereign emerging market
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Investment grade financials
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Investment grade nonfinancials
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Speculative gradeEmerging market corporateStructured Finance
The Greatest Refinancing Challenge Over the Next 12 Months Will be Faced by:
Source: Fitch(%)
Analyst
Monica Insoll +44 20 7417 4281monica.insoll@fitchratings.com
Investor C
ontact
C
harles Marling +44 20 7417 4260charles.marling@fitchratings.com
Related Research
·
European Senior Fixed Income Investor Survey Q110 (February 2010)
·
U.S. Senior Fixed Income InvestorsCautiously Optimistic in 2010 (February 2010)
·
Global Economic Outlook (April 2010)
·
The Credit Outlook: Sovereign Debt Worries Cloud Fragile Economic Recovery (May 2010)
·
Fitch: European Corporates to Hoard Cash Despite Expected Increase in M&A (May 2010)
·
Fitch: European Investors Express Sovereign Refinancing Concerns (May 2010)
·
Fitch: Bank Regulation Uncertainty Concerns European Investors (May 2010)
·
Credit Asset Management Quarterly Q110
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(March 2010)
Survey Background
This survey features 70 responses from the top 100 investinginstitutions in Europe, obtained during April 2010.The survey sample consisted primarily of traditional asset management companies (76%; unchanged on the Q110 survey), with 48% focusing primarily on corporatedebt (down from 63%). Investors with a focus on sovereign debt rose to 23% of the sample (up from 16%). Respondents with more than USD100bn of assets under management accounted for 52% (43%) of the sample (please refer to page 13 for more details).
Credit Market Research
European Senior Fixed Income Investor Survey Q210 Sovereign Refinancing Challenges Escalate May 2010
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2The Paradox: Persistent Sovereign Concerns Contrastwith Greater Optimism forRisky Assets
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