December 12, 2016 / 3:55 PM / 8 months ago

Fitch: U.S. Investors More Positive on Economic Outlook

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: U.S. Senior Fixed-Income Investor Survey 4Q16 here LONDON/NEW YORK, December 12 (Fitch) Credit investors were more optimistic on the U.S. economy in the latest Fitch Ratings/Fixed Income Forum survey which closed on 7 November, the day the presidential election was held but before the outcome was known. Investors' expectations for U.S. economic growth were more optimistic than in our 1Q16 survey in February. Respondents were sanguine about house price trends and believe neither inflation nor deflation to be a threat. Investors were also optimistic on the outlook for banks. On balance they believed bank credit quality will be stable or improving over the next year. Investment-grade financials was regarded as the most undervalued asset class and the most favoured marginal asset choice. Margin pressure and regulation were seen as the main risks to bank credit quality. In contrast, the shadow banking sector was seen as cause for concern. Almost half of the investors polled said the growth of shadow banking has a negative net impact, as risk has been transferred into less-transparent and less-regulated entities. Investors were split on whether the outcome of the presidential election will influence U.S. economic policy and global financial markets. Forty-three percent believed the outcome will be very important - particularly for trade, regulation, and social programs - while 39% said the impact will be limited due to the checks and balances of the political system. Fitch believes there will be an increase in policy uncertainty and potential risks to trade. Survey respondents also highlighted that the UK's Brexit plan adds to challenges. The greatest share of those polled (36%) believed rise in trade protectionism will be the main risk of Brexit to the U.S. Fitch believes Brexit will be disruptive to U.S. global banks with significant operations in the U.K. but does not expect a significant impact on the U.S. economy. Other bearish views included a continued belief that capex will not be a focus for companies. M&A, share buybacks and dividends were all still expected to be prioritized ahead of capex, with the share of investors who expect corporate cash to be directed to capex declining for the fourth consecutive survey. Fundamental credit conditions were still expected to deteriorate most for emerging markets and high-yield companies, against the backdrop of the strengthening U.S. dollar. Sentiment improved towards emerging markets but worsened towards high-yield. The Fitch Ratings/ Fixed Income Forum investor survey addresses investors' views on the significant risk factors facing the U.S. credit markets as well as the general economy. The survey was conducted between 18 October and 7 November and represents the views of 74 senior managers. The full report, entitled "Fitch Ratings/ Fixed Income Forum U.S. Investor Survey 4Q16", covers all major bond sectors and is available at www.fitchratings.com or by clicking the link above. Contact: Monica Insoll Managing Director +44 20 3530 1060 Fitch Ratings Limited 30 North Colonnade London E14 5GN Rui Pereira Managing Director +1 212 908 0766 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com; Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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