The results from a survey of 300 asset managers in Europe, North America and Asia-Pacific indicate “there is an overwhelming feeling that the status quo cannot last”, the report said.
“This feeling is fuelled by multiple factors: looming trade wars, Brexit fallout and growing political unease.”
A majority (78%) said a global recession is likely in the next 18 months and 9% said it was very likely.
Only 12% believe it is not likely.
The sectors most vulnerable in a downturn, according to the respondents, are oil and gas, businesses services and telecom, media & technology, the report said.
If a global recession does occur, 68% of asset managers said they would change their investment strategies to focus on default and recovery rates, 65% said they would move activity to emerging markets and 62% would “invest in fallen angels”.
However, the report noted that EM securities are risky and any redirection of investment would be unlikely to go into EM as a group. 85% of the respondents said a stronger US dollar and increased global trade protectionism “will cause asset managers to be more discerning of the emerging market securities they invest in”.
The highest risk countries in EMs were cited as Brazil, Argentina, Turkey and China. In China, respondents said they were most concerned about soaring non-financial corporate debt, rising trade tensions and slowing GDP growth. “However, [China’s] strong political control over state-owned enterprises should serve to dampen corporate risk, the report said.
The biggest concerns over the next 18 months were inflation and Brexit.
Fitch commissioned the survey of 300 asset managers split almost evenly between Europe, North America and Asia-Pacific, which it said was done “exclusively by appointment over the telephone”. Slightly more than half were portfolio managers.
