25/10/2017/Fitch Ratings
Investors have turned bullish on prospects for companies to ramp up investing in the economic upturn, with more than three quarters now expecting a boost in capex spending, according to Fitch Ratings’ latest European senior investor survey.
An overwhelming 78% of respondents now believe corporates will boost investment in plant and machinery, significantly up from 56% in the previous survey in 1Q17.
“We believe this increased investor optimism on rising capex acknowledges that the global economy has improved markedly this year and is on course to record its fastest expansion since 2010. In particular, the eurozone is growing this year at its strongest rate for a decade,” said Monica Insoll, Head of Credit Market Research at Fitch.
The survey also showed majority responses on ECB QE and asset purchase expectations.
69% of investors expect asset purchases to be phased out during 2018, while the remainder believe the programme will persist into 2019. No respondents expect that it will be halted abruptly at the end of this year. Almost two-thirds (64%) think corporate funding costs will rise as ECB QE is gradually unwound, while the rest believe the improving economy will drive spreads tighter, offsetting any rise in base rates.
The topic of Brexit split investors, with 28% believing the UK will still be an EU member in 2020. This figure has risen sharply from only 6% in our 1Q17 survey and respondents expecting this outcome represented a wide geographic base including the UK, Germany, France, Switzerland and the Nordics.
“The sharp shift in investors’ expectations towards what was previously considered an extreme scenario supports Fitch’s longstanding view that the outcome of Brexit and future UK-EU trade negotiations are highly uncertain with a wide range of possible results,” added Insoll.
39% of respondents were optimistic that there will be a mutually acceptable agreement as well as a single market transition agreement by March 2019. However, 20% are not hopeful about the transition arrangements and 14% do not even expect an agreement by the time of the exit.
Fitch downgraded the UK’s rating to ‘AA’ with a Negative Outlook immediately after the Brexit referendum. The UK’s ratings are not predicated on any particular base case.
