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8/6/2019 European Senior Fixed-Income Investor Survey Q311
1/12
Credit Market Research
www.fitchratings.com 17 August 2011
EMEA
European Senior Fixed-Income Investor Survey Q311Investors Cut Expectations, Reassess Risks
Special Report
Risk Aversion: Fitch Ratings latest quarterly survey (Q311) of fixed-income investors across
Europe shows that, even before the early August market turmoil, investors had already sharply
downgraded their expectations for most fixed-income segments. Responses to the survey,
which was conducted in the four weeks ending 29 July, reflected a greater aversion to risk, with
more negative expectations about credit fundamentals (Figure 1), issuance volumes and
spreads.
Economic Growth Concerns: Investor sentiment remains muted on growth prospects for
developed markets, in contrast to the optimism around emerging markets. The survey shows
European investors remain very bearish on the outlook for the European economy in the next
year, with almost three-quarters of respondents expecting growth at below 2%. This sharply
contrasts with virtually all respondents expecting expansion by over 2% for emerging markets.
Reduced Risk of Inflation: Expectations of inflation fell to their lowest point since Q410, with
46% of participants expecting an increased risk from higher price levels, compared to a peak of
68% in Q211. The result marks a turning point in expectations about inflation, which has been
on an upward path in consecutive quarters since Q310. This switch is likely to reflect increased
fears over the likelihood of a double-dip recession, with the proportion of investors ranking this
as a high risk threat to credit markets almost doubling to 40% from 21% in the prior quarter
Investment-Grade Corporates: Investment-grade non-financial corporates took top spot as
the most favoured asset class, while the higher yielding speculative-grade corporate segment
moved to second place. Cash also found favour, rising to joint third from sixth position in the
last quarter.
Fund Flows: A majority of investors are expecting a slowdown of flows into fixed income. Over
the first half of 2011, funds focused on European debt have experienced regular outflows, while
high-yield, emerging-market and global-bond funds attracted investors in search of either
higher returns or safety away from the euro zone. The only novelty is the reversal of fortune of
high-yield funds, which saw outflows in June.
Figure 1
-0.4
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
Sovereign -
developed
Sovereign -
emerging
Investment-
grade -
financials
Investment-
grade - non-
financials
Speculative
grade
Emerging-
market
corporate
Structured
finance
+1= M ost o ptimistic
-1= M os t pessimisticM inimum
M aximum
CurrentPrevious
Pessimism
Optimism
See Appendix for methodology and interpretation notes; scoring for data from six quarterly surveys between
Q210-Q311, inc lusive
Source: Fitch
Investor Sentiment Scale - FundamentalCredit Conditions OutlookAggregate score, and historical range, by asset c lass
Survey BackgroundThe Fitch Ratings Senior Fixed-Income Investor Survey wasestablished in 2007 and this is the14th edition. This survey garnered 93responses, representing the viewsof managers of an estimatedUSD4.3trn of fixed- income assetsduring the period 29 June to 29 July2011. Over 80% of respondentswere, by job function, fixed-incomeportfolio and investment managers,heads of fixed-income research, orstrategy, asset allocation, or othersenior managers from the largestasset management companies inwestern Europe. The balance wasrepresented by senior credit orsovereign analysts (please refer tothe appendix for more details).
Related Research
Senior Fixed Income U.S. Investor SentimentSlips on Growth (July 2011)
The Credit Outlook - Fragility andInterconnectedness (July 2011)
Predictive Accuracy Analysis of FitchEuropean Fixed-Income Investor Survey(July 2011)
Europe Senior Fixed-Income Investor SurveyQ211; High-Yield Optimism Fades(May 2011)
European Mutual Funds: A New Force inCredit (May 2011)
Analysts
Monica Insoll+44 20 3530 [email protected]
Michael Larsson+44 20 3530 1260
Investor ContactCharles Marling+44 20 3530 [email protected]
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=622149http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646319http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646319http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=644830http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=644830http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621037http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621037http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621037http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621036http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621036http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621036http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=622149http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=622149http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=622149http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=622149http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621036http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621036http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621036http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621037http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621037http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621037http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=644830http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=644830http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646319http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=6463198/6/2019 European Senior Fixed-Income Investor Survey Q311
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Credit Market Research
European Senior Fixed-Income Investor Survey Q311August 2011
2
Economic Growth Fears
European investors are pessimistic about the outlook for economic growth for the region
between now and mid-2012. Almost three-quarters of survey respondents said that they
believe European growth will be weak, at below 2%, while the balance expected GDP to
increase only by a moderate 2%-3%.
In the recent Fitch/Fixed-Income Forum US investor survey, conducted in June, US investors
expressed even more pessimistic forecasts for Europe. In response to the same question, 88%
of US respondents said Europe would grow by less than 2%.
European survey participants were slightly less negative on the prospects for the US, although
a majority of 56% still anticipated growth below 2%. US investors were somewhat less harsh in
judging the outlook for their domestic economy, with a minority, 47%, believing growth would
be weak at below 2%.
Common ground was most evident on the future fortunes of emerging-market economies, with
virtually all respondents in both Europe and the US expecting expansion by over 2%. Just over
one-quarter thought growth would exceed 4%.
On the impact to financial stability from a default on Greek sovereign debt, 91% of respondents
viewed the risk as moderate to high.
Figure 2
0
10
20
30
4050
60
70
80
United States Europe Emerging
markets
United States Europe Emerging
markets
3%
What is the Outlook for Economic Growth Across the Following Regions Over
the Next 12 Months?
(%)
Source: Fitch
European investors' view US investors' view
Confidence Dented on Credit Fundamentals
The latest results display a marked reassessment of investor opinions about credit conditions
across all asset classes. The Investor Sentiment Scale (Figure 1) shows current aggregate
scores (red dots) in negative (ie, pessimistic) territory for all asset classes a distinct shift fromthe position in the last quarter (gold rings).
The ratio of investors expecting an improvement in current fundamental credit conditions was
outnumbered by those expecting deterioration (0.6:1), representing a noticeable reversal from
the ratio 1.6:1 recorded in the prior two quarters. The largest erosion in sentiment was
observed for banks, with developed market sovereign debt (already firmly established in
negative territory for many quarters) experiencing the smallest decline.
Investor expectations for emerging-market (EM) corporate credit finally capitulated (0.9:1 from
2.5:1 in Q211), breaking lower from consistently bullish expectations over the prior four
quarters (Figure 5). Sentiment for high yield (HY) extended its downward trajectory (0.5:1
compared with 1.7:1); a trend that started in the last quarter, and which is reflected in recentfund flow data (see page 5).
Figure 3
High
46%
Low
9%
The Risk of a Greek
Sovereign Default Posing
Systemic Threat to
Financial Stability Across
the Eurozone is
Source: Fitch
Medium
45%
These findings support Fitchs viewthat emerging-market dynamism is
still the main driver of the globalrecovery. However, as the agencynoted in its latest Global EconomicOutlook report, emerging-marketgrowth will slow from 2010s levelsfollowing a tightening in emerging-market monetary policy and theslowdown in so-called advancedcountry economic growth.
David Riley, Head of GlobalSovereign Ratings, Fitch
8/6/2019 European Senior Fixed-Income Investor Survey Q311
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Credit Market Research
European Senior Fixed-Income Investor Survey Q311August 2011
3
Figure 4
13
1
11
1
7
1
3
49
31
42
23
31
30
31
18
47
20
53
44
42
49
16
20
25
23
19
24
16
3
1
2
2
0
0
0
0 10 20 30 40 50 60 70 80 90 100
Sovereign-developed market
Sovereign-emerging market
Investment grade-financials
Investment grade-non-financials
Speculative grade
Emerging market corporate
Structured finance
Deteriorate significantly Deteriorate somewhat Stay the same
Improve somewhat Improve significantly
Over the Next 12 Months, Fundamental Credit Conditions in the Following
European Asset Classes Will (Q311)
Source: Fitch(%)
Higher Issuance to Prevail Despite Spread WideningInvestors trimmed expectations on issuance volumes from the prior quarter, but maintained
their bullish stance overall. Across the board, respondents anticipating higher issuance
volumes outpaced those foreseeing a decline by 2:1; down from 3.4:1 in Q211.
Figure 6
1
0
0
0
1
0
2
15
13
21
23
13
6
22
38
58
40
54
49
52
52
45
27
36
21
32
38
23
0
1
3
4
1
2
4
0 10 20 30 40 50 60 70 80 90 100
Sovereign-developed market
Sovereign-emerging market
Investment grade-financials
Investment grade-non-financials
Speculative grade
Emerging market corporate
Structured finance
Decrease by more than 25% Decrease by up to 25%Remain similar to LTM volumes Increase by up to 25%Increase by more than 25%
What Are Your Expectations for Issuance Over the Next 12 Months by the
Following Categories? (Q311)
Source: Fitch(%)
Banks and HY experienced the largest declines in expectations, with the ratio of those
expecting higher issuance to those expecting lower issuance falling to 1.8:1 and 2.5:1,
respectively, from 6.2:1 and 7.1:1 in the prior quarter.
In the year to date (as of 8 August), overall European debt issuance has been healthy, running
almost level with last year at USD2.7trn. Central government borrowing is down 15% at
USD988bn, although supranational issuance is up by two-thirds at USD137bn. Banks are
running 7% behind at USD764bn, but corporates are 11% ahead with USD249bn issued
(according to Dealogic data).
Developed-market (DM) sovereign debt continues to be perceived by investors as the asset
class posing the greatest refinancing risk, with 70% of respondents selecting it over other asset
classes (Figure 8). The result continues an upward trend that began in Q410, when the asset
class received 51% of responses, and represents a return to the higher levels of concern
observed in Q210, when markets were awakening en masse to the extent of the debt problems
facing sovereign borrowers in euro-zone economies. Views on the challenges to refinancing
bank debt are broadly unchanged from those in the prior quarter (Figure 9).
Figure 5
10
20
30
40
50
60
Q210 Q310 Q410 Q111 Q211 Q311
Spec grade EM
Banks(%)
Over the Next 12 Months,
Fundamental Credit
Conditions Will Improve
(Signif. + Somewhat)
Source: Fitch
Figure 7
0
12
34
5
2009 2010 YTD 2011
Corporates Financials
Sovereign Supras
Other
EMEA Issuance Volume2009 - YTD 2011 (Corporates,
Financials, CG and Supranationals)
(USDtrn)
Source: Dealogic; N.B. Europe constitutes
99% of EMEA issuance so far in 2011
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European Senior Fixed-Income Investor Survey Q311August 2011
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The overall perception is that spreads will widen over the coming 12 months. The ratio of
respondents expecting tightening to those expecting widening dropped to 0.8:1, from 1.3:1 in
Q211.
Figure 10
13
1
12
3
7
1
7
34
32
33
19
32
30
26
24
39
16
43
36
33
51
25
28
30
33
22
36
14
4
0
9
0
2
1
3
0 10 20 30 40 50 60 70 80 90 100
Sovereign-developed market
Sovereign-emerging market
Investment grade-financials
Investment grade-non-financials
Speculative grade
Emerging market corporate
Structured finance
Widen significantly Widen somewhatRemain within recent ranges T ighten somewhatTighten significantly
What are Your Expectations for Spread Movement Over the Next 12 Months in
These Areas? (Q311)
Source: Fitch(%)
Figure 11
-0.4
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
Sovereign -
developed
Sovereign -
emerging
Investment-
grade -
financials
Investment-
grade - non-
financials
Speculative
grade
Emerging-
market
corporate
Structured
finance
Investor Spread Expectationsb
Aggregate score, and historical range,
by asset class
+1= Greatest tightening
-1= Greatest widening
b See Appendix for methodology and interpretation notes; scoring for data from six quarterly surveys between
Q210-Q311, inclusiv e
Source: Fitch
M inimum
M aximum
CurrentPrevious
Widening
Tightening
Fund Flows Fixed-Income as a Challenging Asset Class
A majority of participants expect a slowing of inflows into European bond funds in H211 (Figure
12). Two-thirds of fixed-income investors surveyed expect lower inflows into European bondfunds. This includes 9% of the survey participants who foresee a more dramatic exodus into
cash, gold or higher yielding assets. Despite more recent market volatility the results suggest
that investors already had ongoing concerns about fixed income as an asset class.
A quarter of investors expected no significant reallocation of money during H211, while 7%
thought the slowing of inflows would reverse quickly. This result shows a continuation of
investor sentiment from Fitchs survey in January this year, when investors expressed a
cautious outlook for the asset class, with 68% anticipating a continued slowing of inflows into
fixed income during 2011.
Data from Lipper show that Europe-domiciled mutual funds that focus on European IG have
experienced estimated net outflows of EUR4.3bn during the first half of 2011. The redemptionshave been offset by net inflows of EUR5.1bn into similar funds investing in European HY debt.
However, the appeal of European HY as a destination for investor capital showed signs of
waning in June when investors are estimated to have redeemed net funds of EUR1.1bn.
Figure 8
70
2
18
0
2
1
7
0 10 20 30 40 50 60 70
Sov. DM
Sov. EM
IG - fin.
IG - non-fin.
Spec. grade
EM corp.
Struct. fin.
The Greatest Refinancing
Challenge Over the Next 12
Months Will be Faced by
(Q311)
Source: Fitch (%)
Figure 9
5
15
25
35
45
55
65
75
Q210 Q310 Q410 Q111 Q211 Q311
Sov DM Banks(%)
The Greatest Refinancing
Challenge Over the Next 12
Months Will be Faced by
Source: Fitch
There is a high level of correlationbetween equity, credit spreads and,more recently, government bonds.This reflects the current general riskon/risk off regime and the end of thestatus of government bonds as risk-free assets. With inflation risk andunconventional monetary policies,investors face low risk/returnprospects with bonds and someincreasingly turn to currencymarkets to find safe havens andplay global imbalances.
Aymeric Poizot, Senior Director,Fund and Asset Managers, Fitch
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European Senior Fixed-Income Investor Survey Q311August 2011
5
European IG mutual funds benefitted from heightened investor risk aversion in June, seeing net
inflows for only the second time this year. This recent shift away from HY and into IG is
confirmed by survey data (Figure 14), which indicated in Q211 the onset of declining interest in
HY relative to IG; the latter clinching most favoured asset class for the first time in Q311.
Figure 12 Figure 13
A slowing
of inflows
into bond
funds
58%
Expectations of European Bond
Fund Flows for H2 2011
Source: Fitch
No significant
reallocation of
money
26%
A massive exodus
from bonds into
cash/gold or higher
yielding assets
9%
Strong net
inflows into
bond funds
7%
-5
5
15
25
35
45
55
2008 2009 2010 Q111 Q211 H111
High yield Inv. grade
European Bond Funds - Net FlowsFor Europe-domiciled mutual funds, 2008 -
end Jun 2011
(EURbn)
Source: Lipper, Fitch
Incremental Investment Index
IG non-financials took top spot as the most favoured asset class, taking 18% of investor votes
the same proportion as recorded the last quarter. Speculative-grade corporates move to
second place, with 16% of votes, down from a top-placed score of 21% in Q211. Banks, Cash
and DM sovereign debt all take third place with 13% of votes (cash being the only riser of the
three over the quarter). Overall, investors show limited conviction in the upside, with votes
distributed across all asset classes.
Figure 15
7
17
16
12
13
18
16
3
13
3
12
4
38
3
13
11
0 10 20 30 40 50 60
Sovereign-developed market
Sovereign-emerging market
Investment grade-financials
Investment grade-non-financials
Speculative grade
Emerging-market corporate
Structured finance
Cash
Least favoured Most favoured
If You Had EUR1 to Invest Today, Which Would be Your Most and Least
Favoured Choice Respectively? (Q311)
Source: Fitch (%)
Banks, High-Yield Loss Expectations Jump
Overall, a greater proportion of investors expect higher collective future losses from the asset
classes (Figure 16). Banks saw a marked rise in expectations about future losses, with 31% of
respondents now anticipating more losses, up from 11% in Q211. HY experienced a similarly
large move higher to 24%, a doubling of the figure recorded in the earlier quarter.
Despite the gloom surrounding DM sovereign debt, fewer respondents expect future losses
from this asset class compared to the last quarter down to 49% from 54% in Q211
(Figure 17).
Figure 14
5
15
25
35
Q210 Q320 Q410 Q111 Q211 Q311
Speculative grade
EM - co rporate
Investment-grade - financials
Investment-grade - co rporates(%)
Most Favoured Asset
ClassesResponse rate relative to other
credit classes
Source: Fitch
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European Senior Fixed-Income Investor Survey Q311August 2011
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Figure 16
49
20
31
11
24
18
19
38
29
42
33
42
41
43
12
51
27
56
34
41
37
0 10 20 30 40 50 60 70 80 90 100
Sovereign-developed market
Sovereign-emerging market
Investment grade-financials
Investment grade-non-financials
Speculative grade
Emerging market corporate
Structured finance
We are yet to see the peak of the loss-taking
We are in the middle of the loss-taking
We are past the worst of the loss-taking
What are Your Expectations for Default/Market Driven Losses? (For Financial
Institutions, Read Loss Disclosure, for Corporates and Structured, Read Loss
Taking for Investors) (Q311)
Source: Fitch(%)
Fears Mount Over Double-Dip RecessionThe sharpest rise in sentiment about risks to the European credit markets comes from fears
over the likelihood of a double-dip recession, votes for which almost doubled to 40% from 21%
in the prior quarter.
Concerns over the withdrawal of central bank monetary easing dropped by more than one-half,
to 30%, from 61% in Q211. The US Federal Reserves USD 600bn QE2 programme ended on
30 June, with this survey conducted in the four subsequent weeks.
European sovereign debt problems continue to present the greatest risks in investors minds,
taking an overwhelming 98% of the vote, up from 89% in Q211.
Figure 18
34
2
39
70
66
35
40
98
61
30
65
60
0 10 20 30 40 50 60 70 80 90 100
Double-dip recession
Sovereign debt problems
Geopolitical risk
Withdrawal of central bank credit market easing/QE
Anticipation of Basle 3/regulatory overhaul
Chinese monetary tightening
High Low
Please Rate the Degree of Risk Posed by the Following Factors to the
European Credit Markets Over the Next 12 Months (Q311)
Source: Fitch (%)
Inflation Expectations Shift Lower
Fears over global growth led to a sharp downward revision in expectations for inflationary risks,
in line with rising expectations of a double-dip recession. Respondents citing inflation as posing
a greater threat than deflation over the coming 12 months declined to 46%, from 68% and 55%
in Q211 and Q111, respectively (Figure 19). The result snaps an upward trend that began in
Q310. Only 22% of investors see deflation as posing a risk, up marginally from 19% in Q111.
Figure 17
0
10
20
30
40
50
60
Q210 Q310 Q410 Q111 Q211 Q311
Sov DM Banks HY
(%)
What are Your
Expectations for Default/
Market Driven Losses? (ForFinancial Institutions, Read
Loss Disclosure, for
Corporates and Structured,
Read Loss Taking for
Investors)
Source: Fitch
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Figure 20
78
32
81
46
22
68
19
54
0 10 20 30 40 50 60 70 80 90 100
Inflation Q311
Deflation Q311
Inflation Q211
Deflation Q211
High Low
As Central Banks and Governments Balance Their Pressing Priorities,
How Serious is the Risk of Inflation or Deflation Respectively Over the
Next 12 Months? (Q311) vs. (Q211)
Source: Fitch (%)
Corporate Fundamentals to Weaken
The previously net positive outlook for corporates came to an end in Q311, with the ratio of
investors expecting improving credit conditions to those expecting a deteriorating environmentdropping to 0.4:1 from 1.2:1 in the prior quarter (Figure 21). The steepest declines were
observed in telecoms and media and manufacturing sectors, whilst the retail and consumer
segment continued to be of greatest concern to investors.
The view of those survey respondents with a focus on corporates (specialists view) was
marginally more negative (Figure 21a). Two-thirds (67%) of corporate-focused investors expect
the retail and consumer sector to experience deteriorating fundamentals over the next 12
months, compared to 53% of the full sample. Appendix 1 provides details of the sample of
respondents, and their primary areas of focus (Figure A3).
Figure 21
4
0
1
0
49
31
30
41
34
51
51
45
12
18
16
14
0
0
2
0
0 10 20 30 40 50 60 70 80 90 100
Retail,leisure&consumerproducts
Energy/utilities
Industrials/manufacturing
Telecoms/media
Deteriorate significantly Deteriorate somewhatStay the same Improve somewhatImprove significantly
Over the Next 12 Months, Fundamental Credit Conditions in the Following
European Industries Will.(Q311)
Source: Fitch(%)
Figure 21a
4
0
4
0
63
33
33
38
25
50
50
50
8
17
13
13
0
0
0
0
0 10 20 30 40 50 60 70 80 90 100
Retail,leisure&consumerproducts
Energy/utilities
Industrials/manufacturing
Telecoms/media
Deteriorate signif icantly Deteriorate somewhat Stay the same
Improve somewhat Improve significantly
Over the Next 12 Months, Fundamental Credit Conditions in the Following
European Industries Will.(Q311) - Specialists' View
Source: Fitch(%)
Figure 19
10
20
30
40
50
60
70
Q210 Q310 Q410 Q111 Q211 Q311
Inflation Deflation(%)
High Risk of Inflation or
Deflation Respectively
Over the Next 12 Months?
Source: Fitch
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IG and EM to Experience Tighter Lending
The majority of respondents expect IG and EM corporates to face tight or tightening lending
conditions, a reversal from the situation in the prior quarter, when the majority expected further
loosening. IG experienced the greatest shift in sentiment, with 68% of investors expecting tight
conditions to persist or to get more stringent up from 44% in the last quarter.
Figure 22
9
28
15
22
59
53
53
61
31
18
32
17
1
0
0
0
0 10 20 30 40 50 60 70 80 90 100
Investment-grade corporates
Speculativegradecorporates
Emerging-market corporates
SMEs
Standards will tighten further Standards will remain moderately tight
Standards will loosen moderately Standards will loosen significantly
What is Likely to Happen to Commercial Bank Lending Conditions in Europe
Over the Next 12 Months? (Q311)
Source: Fitch(%)
Cash Barrier
Amidst rising uncertainty in global markets, respondents indicated an expectation that
corporate entities would reign in cash spending on shareholder-orientated activities (Figure 23),
and instead place more focus on defensive actions, such as maintaining cash positions or
deleveraging. With respect to cash, 81% of respondents expect companies to maintain
cushions, rising from 66% in Q211 (Figure 24).
Despite the rise in expectations of defensive positioning by companies, overall expectations ofcash usage on factors aimed directly at growth or increasing shareholder value (capex, share
repurchases, dividend payments and M&A) continued to outnumber those expecting limited to no
use of cash in these areas by 2.2:1, although down from 4.6:1 on the last quarter.
Figure 25
4
13
14
18
14
37
57
52
63
56
56
44
36
26
22
26
28
14
3
9
1
1
2
4
0 10 20 30 40 50 60 70 80 90 100
Capex
Share repurchase
Dividends
M&A
Debt amortisation/pay downs
Maintain cash cushion
Significant Moderate Limited Not at all
How Do You Expect European Firms to Use Cash Over the Next 12 Months?
(Q311)
Source: Fitch(%)
Macroeconomy Key for Bank Debt Strength
Concerns over access to funding and the macroeconomy continue to rise, with 52%
considering the former to be critical to the credit quality of banks, up strongly from 35% in the
last quarter. The vast majority (90%) identify access to funding to be either critical or important
to bank credit quality, with 84% highlighting macroeconomic effects (Figure 26).
Figure 23
30
50
70
90
Q110Q210Q310 Q410Q111Q211Q311
CapexShare repurchase
DividendsM&A(%)
Significant/Moderate
Focus of Cash Spend Over
the Next 12 Months?
Source: Fitch
Figure 24
60
70
80
90
100
Q110Q210Q310Q410Q111Q211Q311
Debt amortisation/pay downs
Maintain cash cushion(%)
Significant/Moderate
Focus of Cash Spend Over
the Next 12 Months?
Source: Fitch
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Figure 26
26
8
26
5
52
58
41
48
56
38
14
45
22
37
8
6
4
1
0
0
0
3
2
0
0
0 10 20 30 40 50 60 70 80 90 100
Macroeconomy
Stimulus/QE withdrawal
Regulation
Commercial property exposure
Access to funding
Critical Important Limited Neutral Irrelevant
How Important are the Following Risks to Banks' Credit Quality Over the Next
12 Months? (Q311)
Source: Fitch(%)
Figure 26a
18
6
47
6
59
82
41
47
71
24
0
47
6
24
6
6
0
0
0
0
0
12
0
0
0
0 10 20 30 40 50 60 70 80 90 100
Macro
Stimulus/QE withdrawal
Regulation
Commercial property exposure
Access to funding
Critical Important Limited Neutral Irrelevant
How Important are the Following Risks to Banks' Credit Quality Over the Next
12 Months? (Q311) - Specialists' View
Source: Fitch(%)
Of the respondents with a particular focus on the banking sector (specialists view), the results
differed marginally, with 100% seeing the macroeconomy as having an important or critical
impact on the quality of bank debt, and regulation as the second most important factor (94%)
Figure 26a. Access to funding remains the factor with the highest number of votes (59%)
identifying it as critical.
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Appendix 1
Description of Respondents
Figure A1
72
14
49
75
115 8
0
10
20
30
40
50
60
70
80
Traditional asset
management company
Insurance company Pension fund Bank
Q311 Q211Which of the Following Best Describes Your Firm?(%)
Source: Fitch
Figure A2
42
9
2228
49
8
2023
0
10
20
30
40
50
60
More than USD100bn USD50bn-USD100bn USD20bn-USD50bn Up to USD20bn
Q311 Q211
Which of the Following Best Describes the Amount of Fixed-Income Assets
Under Management at Your Firm?
(%)
Source: Fitch
Figure A3
05
10
15
20
25
30
Corporate debt -
financial institutions
Corporate debt -
industrials
Structured debt Sovereign debt All
Which of the Following is Your Primary Focus (Q311)?
(%)
Source: Fitch
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Appendix 2
Quantifying Aggregate Sentiment Levels and Spread Expectations
The Investor Sentiment Scale chart on page 1 and the chart of investor spread expectations on
page 4 are digital representations of investor expectations for fundamental credit conditions
and spread movements, respectively, over the next 12 months. Respondents are asked toselect responses from a pre-defined set of categories, which are subsequently assigned scores.
Investor Sentiment Scale: Deteriorate significantly [2]; ii) deteriorate somewhat [1]; iii) stay
the same [0]; iv) improve somewhat [+1]; and v) improve significantly [+2].
Investor Spread Expectations Scale: Widen significantly [-2]; ii) widen somewhat [-1]; iii)
remain within recent ranges [0]; iv) tighten somewhat [+1]; and v) tighten significantly [+2].
Scores are summed within each asset class and remapped onto a linear scale ranging from -1
to +1, representing most negative and most positive expectations of credit spread movement,
respectively.
InterpretationEach chart displays current and previous survey expectations (see red dots and gold rings,
respectively) for each asset class, relative to the historical range of sentiment scores collected
over the period Q210 to Q311. Solid bars define the maximum-to-minimum range of scores,
where shorter bars reflect smaller variations in opinions for each asset class, across time.
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