Opportunities result from geopolitical risk

Good investment opportunities are arising in global credit markets in the wake of geopolitical risks around the world, a specialist fund manager has said.

According to global credit manager CQS chief executive Michael Hintze, events such as the tension on the Korean Peninsula, the developments regarding Brexit and issues facing the Trump presidency in the United States were presenting chances for organisations such as his own to find value in markets.

“While markets are towards the upper end of their valuation ranges, there is dispersion and opportunity in corporate credit,” Hintze said.

He pointed out both European Union high-yield credit markets and strengthening balance sheets in the US were supporting current valuation levels in credit markets, but warned the figures needed some context. “Importantly, these measures are averages and there is sufficient dispersion around the averages. In the US there have been rolling pockets of stress, distress and dislocation in a number of sectors, including retail, energy and financials. There is idiosyncratic opportunity,” he said.

The manager expects to see continued value in credit spreads in a rising interest rate environment currently pervading the US market. “While many market participants continue to voice concerns about a ‘credit bubble’, I do not see any near-term catalysts that would result in a meaningful widening of credit spreads,” Hintze predicted.

Oil prices are another area CQS will be focusing on in the immediate term, with Hintze forecasting them to stay within US$35 to US$55 per barrel.

However, if the price falls below US$40 a barrel, opportunities will present themselves in the energy sector, he said. “Based on our fundamental views, we would be looking to add to, or initiate, positions in specific names on any such weakness.”

Further, the manager revealed it will be monitoring coming geopolitical events in China, including a potential slowdown of the Chinese economy.


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