Credit markets ‘showed strong resilience in 2020’

MANAMA: European default rates will remain relatively elevated through 2021 and the over-reliance of European markets on central bank stimulus poses significant medium-term risks as the support is eventually reduced or removed, according to a new report.

The inaugural Investcorp ‘House View’ on the state of global credit markets says European leveraged loans have extended their nine-year record of positive annual returns in 2020 and are poised to benefit from several technical tailwinds, including a pronounced structural supply deficit, led by subdued primary issuance and continued new collateralised loan obligation (CLO) issuance.

However, European market fundamentals are facing significant pressure and uncertainties from the Covid-19 pandemic and the related lockdown measures to contain the virus, it said.

The report analyses the recent performance of US and European credit markets and provides an outlook for key expectations in 2021.

Among key findings by the Bahrain-based alternative investment manager was global economic momentum slowed during the fourth quarter of 2020 due to rising Covid-19 cases, but the impact has been more limited compared to the initial lock-down in the spring of 2020.

“Credit markets once again demonstrated their resiliency in 2020, staging an extraordinary recovery following the market rout last March and highlighting the need for disciplined and active portfolio management,” said Investcorp Credit Management Global head Jeremy Ghose.

“Overall, defaults have been focused on sectors most negatively impacted by Covid-19 and have been offset by significant fiscal and monetary support. Looking ahead, we expect there will continue to be significant volatility across markets, but we also believe that this will create opportunities for skilled active managers to capture value as portfolios are rebalanced amidst the recovery.”

Investcorp European Credit Funds head Philip Yeates said while the firm is encouraged by the improving overall macro outlook and credit fundamentals entering 2021, it recognises the various challenges and uncertainties that could emerge and lead to periods of volatility.

“Our European portfolios have been conservatively positioned but we also intend to take advantage of short-term windows to rotate positions and capture value,” he added.

“We remain focused on continuing to identify attractive investment opportunities where we have high conviction in the business quality, liquidity and post-pandemic recovery prospects.”

Investcorp Credit Management is a leading global credit manager with over $14 billion in assets under management, a more than 16-year history of investing across global credit markets and is comprised of 40 seasoned investment professionals with its senior team averaging more than 20 years of industry experience.




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