High household debt and further strong house-price gains are fuelling Australian investor’s concerns around a domestic housing-market downturn, according to Fitch Ratings’ latest survey of the country’s fixed-income investors. Investors also believe developments in the Eurozone now pose a greater risk to Australian credit markets than a China hard landing.
The 2Q17 survey was undertaken in partnership with KangaNews – a specialist publishing house that provides commentary on fixed-income markets in Australia and New Zealand. Findings represent the views of managers of more than AUD300 billion of fixed-income assets, accounting for over three-quarters of Australia’s domestic real-money market.
Australia is facing mildly tougher economic conditions according to fixed-income investors. Their outlook for three key economic indicators suggests the next three years will see modest interest rate increases, a drift to slightly higher unemployment and house price declines. Interestingly, 60% of investors expect house prices to rise by between 2% and 10% by end-2017, while 52% expect house prices to decline by between 2% and 10% by end-2019.
Investors believe banks are better placed to manage risks, despite their less-than-rosy economic outlook, following steps taken to strengthen bank balance sheets and tighten lending standards. Property market exposure remains investors’ key concern, but the proportion ranking it as ‘critical’ has dropped to 30%, from 43% in our previous 4Q16 survey.
Corporate Australia’s credit profile is also expected to strengthen, with more investors taking the view that corporates will deleverage. The proportion of investors expecting corporate leverage to decrease has risen to 23%, from 4%, over the three surveys conducted over the past twelve months. Investors have nominated the corporate asset class as their preferred investment choice.
Australian investors anticipate a strong rebound in structured finance RMBS and ABS issuance over the next 12 months. Fifty-eight percent believe there will be increased issuance in 2017, up from just 16% in our 4Q16 survey.
