Aussie fixed income investors concerned about geopolitical risks

Australian fixed income investors consider political and geopolitical risk to be the greatest threat to domestic credit markets over the next 12 months, according to Fitch Ratings 4Q19 fixed income investor survey.

The study revealed that 74% of respondents admitted that all top-five risks were linked to possible fallouts from political disagreements. A further 44% said that China’s hard landing remained their second-top risk for Australian credit markets.

At the same time, investors were highly optimistic about house prices increasing rather than declining by mid-2020, with only 28% still ranking the risk of a housing market downturn as high. This compared to the survey six months ago when 95% of respondents thought house prices would decline.

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Also, the survey showed that 23% of investors viewed the macroeconomy as a critical risk to bank credit quality, compared with 19% for property-market exposure.

According to investors, Australian corporates’ appetite for leverage would remain highly unchanged over the next 12 months.

Sustainable bonds stand apart from other asset classes in terms of likely issuance in the next 12 months, with 88% of 4Q19 survey investors expecting sustainable bond issuance to increase, with sovereign bonds the next highest at 56%.

Overall, investors said that they believed issuance was more likely to increase than decrease across all asset classes surveyed other than covered bonds.

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