Most credit managers continue to believe credit defaults will increase during the next 12 months, the latest quarterly survey from the International Association of Credit Portfolio Managers found.
The Credit Default Outlook index for the next 12 months is -52.8, up from -56.2 the previous quarter. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.
By region, credit managers were most pessimistic about corporate defaults in Europe; 68% of survey respondents expect corporate defaults to increase in Europe over the next 12 months. That region’s index plummeted to -64.9 from -40 the previous quarter.
Overall uncertainty following the recent British vote to leave the European Union had an impact on credit portfolio managers’ outlook, said Som-lok Leung, IACPM executive director, in a telephone interview.
“It’s pretty clear that the broad consensus believes that Brexit is a bad thing for the U.K. (and) probably not great for Europe, but a lot depends on how the negotiation (to separate the U.K. from the EU) goes,” Mr. Leung said.
“The financial services industry, and banking in particular, gets an outsized impact from Brexit,” Mr. Leung said. “Certainly, talking to our members in London, a lot of them are just getting over being shellshocked.”
Pessimism dominated the survey, but some regions saw relative improvements in their indexes: The Credit Outlook Index for North American corporate defaults rose to -48.7 from -82.1 the previous quarter; Australia rose to -45 from -66.7; and Asia rose to -45 from -66.7.
Survey respondents also believe credit spreads will widen in the next three months, with the IACPM Major Markets Credit Spread Outlook index at -39.7, slightly down from -38 the previous quarter.
The survey is conducted among IACPM members, which consists of credit portfolio managers at more than 90 financial institutions in the U.S., Europe, Asia, Africa and Australia.
