Tuesday 23 July 2019

Consulting group warns on 'mounting evidence' of overextension of credit

Paul Kenny, head of investments at Mercer Ireland
Paul Kenny, head of investments at Mercer Ireland
Ellie Donnelly

Ellie Donnelly

Global consulting group Mercer has warned there is "mounting evidence" of an overextension of credit.

"White-water" turbulence, where the macroeconomic backdrop still continues to be positive, and pro-business policies and strong levels of business optimism should provide support to equity markets.

However, in its ‘Economic and Market Outlook 2019 and Beyond’ paper, Mercer has said there is “mounting evidence” of an overextension of credit.

Outstanding debt is increasing, while quality of the debt is decreasing.

Covenants are deteriorating and speculative use of debt is becoming more evident, the report adds.

When these equity and bond market dynamics meet, there is scope for "white-water" turbulence. Navigating such an environment will require investors to be flexible, while remaining focused on long-term goals, the paper adds.

"2019 promises to be a challenging year for investors," Paul Kenny, head of investments at Mercer Ireland, said.

"Amidst the headlines and predictions, investors need to consider what remains appropriate as a long-term investment strategy. The investment themes we have identified should help trustees and investors do just that."

The paper also says that institutional investors are increasingly investing in "private-market" assets.

Elsewhere it advises that political fragmentation is likely to continue.

"Trade tensions are threatening globalisation, and it is possible that the pace of globalisation may slow, pause or even go into reverse," Mr Kenny added.                                                                                                                                                                                                                                              

"Whilst more turbulence in global politics is likely to continue to weigh on markets, rising volatility should present opportunities for some investors and strategies such as hedge funds or multi-asset funds."

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