Global credit portfolio managers are forecasting rising defaults over the next 12 months primarily because of growing geopolitical concerns, according to the latest quarterly survey from the International Association of Credit Portfolio Managers.
Globally, 56% of managers see default rates going up over the next 12 months (up from 42% in the third-quarter survey), while 30% say they will remain unchanged (down from 38%) and 13% say default rates will go down over the next 12 months (down from 20%).
Som-lok Leung, executive director of IACPM, said in an interview that geopolitical concerns are at the top of credit managers’ minds entering the new year.
“There are a lot of concerns about geopolitical instability in all its different forms, and probably stronger in Europe really from the Ukraine war,” Leung said. He also cited recent elections in Europe as a source of pessimism along with the recent U.S. presidential election that resulted in the imminent return of Donald J. Trump to the Oval Office.
“I think Trump could be good and bad, but he's certainly typically unpredictable, right?” Leung said, “So I think that is certainly an area for watchfulness.”
The IACPM Aggregate Credit Default Outlook index, which measures the likelihood managers say default rates will rise over the next 12 months, is -42.8 for the fourth-quarter survey, a significant drop from -30.4 the prior quarter.
A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.
By region, reflecting Leung’s comments, pessimism is greatest for Europe, where the index score plummeted to -57.9 (down from -30.6 the previous quarter), followed by Australia at -31.8 (down from -31.6), North America at -30.8 (down from -16.2) and Asia at -27.3 (down from -4.8).
The survey was conducted among IACPM members, who are credit portfolio managers at 154 financial institutions in the U.S., Europe, Asia, Africa and Australia.