Concerns about a “cockroach infestation” in the US banking sector have been overstated, according to Benoit Anne, head of markets insights group at MFS Investment Management, who said the recent credit turbulence is unlikely to spark a systemic event.
Anne stated that while several US regional banks have reported write-downs linked to a bankrupt commercial real estate investment trust, the issues appear contained.
“Everybody calms down: there is no cause for panic, in Market Insights’ view,” he said.
Federal Reserve chair Jerome Powell’s recent remarks suggest the central bank will soon review its quantitative tightening program, with an end likely by year-end, which according to Anne, should “alleviate downward pressure on banking reserves”.
Despite fears that “spotting one cockroach” could signal more widespread defaults, Anne noted that the recent loan losses remain small and unconnected.
“Our investment team views the events as isolated, relatively small and unlinked, reducing the likelihood of a systemic credit event.”
Broader markets, including asset-backed securities and collateralised loan obligations, have not shown significant spread increases tied to these defaults.
The dislocations, Anne said, could instead create openings for active managers.
“These ongoing disruptions could spark dislocations, presenting opportunities for active managers to deploy capital at attractive valuations,” he added.
Meanwhile, the International Monetary Fund’s latest World Economic Outlook offered a cautiously optimistic assessment of global growth.
The IMF has projected global growth to slow only modestly to 3.2 per cent in 2025 and 3.1 per cent in 2026, a stronger forecast than a few months ago.
“This looks to us like a global soft landing scenario, but there are still major downside risks,” Anne said, pointing to potential threats such as prolonged policy uncertainty, protectionism, and fiscal vulnerabilities.
“Resilient growth supports a gradual rate-cutting cycle, which in turn enhances the appeal of duration-sensitive assets and risk-on strategies,” he added.
Investors should recognise divergence across regions, with emerging markets appearing better positioned than many advanced economies, according to the head of markets.
“What this may mean for global investors is they should be encouraged to lean into this divergence by considering asset classes that benefit from cyclical recovery and monetary easing, such as emerging market debt and global equities,” Anne said.
