The outlook for the Australian credit market is optimistic for the short to medium term, as the United States delivers positive economic data.
“The global economic backdrop at the moment is reasonably sanguine,” QIC director of credit for global fixed interest Peter Scobie told InvestorDaily.
“Around the world, particularly in the United States, we’ve got fairly modest growth, but it is growth nonetheless.”
With inflation remaining relatively contained, interest rates were being kept on hold, Scobie said.
“With that global backdrop, we see that as a good environment for credit [as] spreads at the moment are relatively elevated compared to history, in particular in financials,” he said.
“What this means is Australia should be well placed to benefit from a soft landing in China, the modest growth occurring elsewhere and contained inflation. It means we’re unlikely to see significant lifts in interest rates globally.”
The prevailing interest rates in Australia had limited any declines in the currency and had also helped to reduce some constraints in the manufacturing industry, he said.
“Having said that, if we expect credit spreads to contract globally, we can expect credit spreads for Australian corporate to do the same, especially for those that are able to fund offshore markets,” he said.
Recent US data had been slightly stronger than most forecasters were expecting and if that were to continue, the chances of rate rises would be brought forward there, he said.
If the outlook for global growth was on average stronger, it would mean the shareholder-friendly activity from previous growth periods would be likely to return, he said.
“In that environment, credit will continue to perform for a short period of time, [but] eventually that stronger growth will mean that interest rates will rise,” he said.
“Should a hard landing in China occur, it would change our outlook and that would go hand in hand with a fall in the Australian dollar.”
