The need for strong and truly independent credit opinions as a tool to support and help the development of capital markets has been the ‘fil-rouge’ of the panel discussions at the two-day Euromoney’s High Yield Conference in London this week. In the current negative interest rates environment prompted by the ECB’s monetary policies, investors’ search for yield will realistically push available liquidity towards more risky asset classes, including mid-corporates and SMEs, both in equity and debt. From this perspective, transparency, disclosure and strong surveillance capabilities may be sought in some domestic markets.
‘As an independent credit opinion provider, CRIF Ratings is very well positioned to play this role and fulfill these market needs, especially in Italy and in Spain – the two jurisdictions where the agency is currently present with strong analytical capabilities and local offices. Both markets offer a tremendous potential for investors who are willing to invest in small to mid-corporates credits’ - says Francesca Fraulo, Managing Director leading the Corporate Rating analytical team at CRIF Ratings. ‘It was extremely encouraging to hear from international equity and debt investors that they are ‘open for business’ in Italy and Spain and that the country risk on both markets is no longer perceived as a deterrent for investing there’ continues Ms Fraulo.
‘The credit cycle we’re leaving in is characterized by extreme volatility and it is driven by an unprecedented combination of macroeconomic factors, including an increasing geopolitical risk, as sadly proved by the breaking news on the Brussel’s terror attacks in the opening day of the conference, adverse developments of emerging markets and a very weak economic recovery that is very well below expectations in some countries across Europe. Investors’ attention on credit fundamentals is paramount and quality credit opinions are strongly in demand. In a negative interest rate market phase, with abundant liquidity in search for return, investors should be very cautious about the documentation on credit protection and the quality of borrowers, as refinancing conditions in five to seven years might be very different.’
Many more topics were discussed during the two days by delegates from investment banks, private debt and equity funds, asset management houses, advisors and specialized lenders. Notably amongst the issues discussed, the current market catalyst for capital markets but also for the overall EU economic recovery - the ongoing debate about ‘Brexit’, which will partially holding off some market participants from undertaking more aggressive portfolio positions in the run-up to the referendum of 23 June. The potential consequences of the UK exiting the EU were assessed in a scenario analysis; unanimous was the audience’s feeling for the serious negative effects for the economic recovery in continental Europe should the Brexit scenario become reality in 2016.
CRIF Ratings will closely monitor the development of these macro factors and will incorporate some of the base line economic assumptions in its sector and market researches.
