European Bond Investors Signal Dramatically Lower Confidence In Economic Outlook

by: Research Recap

Fitch Ratings’ latest quarterly European Fixed Income Investor Survey shows that expectations of growth-oriented company investment dropped to their most negative since Q110.

“Capex and mergers and acquisitions are now considered much less likely to occur than six months ago, with fewer than half of respondents anticipating a moderate- to significant focus of corporate cash usage in these areas,” said Monica Insoll, Managing Director in Fitch’s Credit Market Research group.

These readings represent roughly a halving of those at the Q211 peak, confirming the weakening trend in macro-economic sentiment indicated by other parameters surveyed.

Although the Q411 survey was conducted during October – a relatively benign period in the financial markets until the escalation of the Greek crisis at the end of the month – investors signalled dramatically lower confidence in the economic outlook. A survey-high of 70% of participants said the risk of a double-dip recession is high; up from 40% and 21% in the prior two quarters, respectively.

Survey participants also expressed concern over the slowdown of emerging market growth, which has become a dynamo for much of world economic activity. Investors were more negative about the outlook for fundamental credit conditions in the EM sovereign sector than in Q311, with 41% of respondents now expecting deterioration, up from 32%.