December 2021 / FIXED INCOME
Credit Investing Roadmap for 2022
Navigating the credit cycle and the road ahead
- Credit fundamentals across high yield and investment grade corporates are generally robust, in both emerging and developed markets.
- On aggregate, we are broadly positive on high yield, neutral on investment grade and somewhat negative on emerging markets.
- Within high yield, we see particular value in the leveraged loan market, and in areas such as mandatory convertibles and second lien loans.
- In high yield, we expect to see a trend of rising stars migrating into investment-grade space, so the name of the game in 2022 will be predicting the upgrades.
- In investment grade, amid inflation concerns, rising yields and the prospect of central bank tapering, the proportion of sub-zero debt is smaller than it was this time last year. The question is whether that will alter investor behaviour.
- For investment grade investors, a key theme is semiconductor supply chain issues, especially in the auto sector. We think challenges will persist in 2022, but we think the bigger challenge to credit quality will be the transition to electric vehicles.
- While emerging market (EM) corporate fundamentals are generally healthy, tight valuations and numerous headwinds keep us broadly neutral on the asset class. In Asia credit, Evergrande’s woes have hit sentiment towards Chinese high yield, but the investment grade sector has remained resilient. Elsewhere in EM, political and policy uncertainties continue to weigh in the Central and Eastern Europe, Middle East and Africa (CEEMEA) and Latin American regions.
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