QE trumps fundamentals, Vikings tell Fitch

A clear majority of delegates at a Fitch Rating Viking Tour 2015 expect the European Central Bank’s quantitative easing programme to be the driver of European credit market performance this year, the rating agency found.

Fitch surveyed 240 attendees of its annual cross-sector Nordic tour in April.
Asked what they believe will drive European credit market performance in 2015, delegates opted for QE, with 68% of respondents in Oslo, 53% in Copenhagen, 63% in Stockholm and 70% in Helsinki identifying the ECB’s asset purchase programmes as the most likely factor. Fundamentals were identified as the least likely factor, chosen by only 4%.
Fitch said the results tally with the findings of a first quarter 2015 European senior fixed income investor survey.
“With the QE programme creating a shortage of government bonds and an increasing proportion of these already on negative yields, investors are piling into corporate bonds,” the rating agency said. “A clear majority of respondents expect QE to boost capital markets, but only a minority believe it will address disinflationary trends.”
The majority of delegates were optimistic about their expectations for the Eurozone. Most said they anticipate economic recovery in the region this year.
Fitch noted around 40% on average expect another year of economic stagnation, while only a small minority expect a renewed crisis — although this group comprised 13% of respondents in Stockholm. The rating agency said these views are consistent with its latest macroeconomic projections.
“We forecast Eurozone GDP growth to pick up from 0.9% in 2014 to 1.4% this year and 1.7% in 2016,” Fitch said. “However, despite the improving economic prospects, the rating recovery seen last year has come to a halt, at least for now.
“Risks to the ratings remain in a number of Eurozone countries, related to high public debt levels, low growth prospects, and in some cases external imbalances.”
Quizzed on risks to EU banks’ senior unsecured creditors, a third of delegates said the strengthening of banks’ standalone creditworthiness balances out the negative pressures of reducing support from EU sovereigns and the new resolution framework. One in five said the positive effect more than offsets negative pressures. n