The BNP Paribas Capital Markets Outlook Study surveyed 15 of the largest managers of credit portfolios in Australia during May 2014 and found over half of respondents expected an increase in flows into their credit funds.
The study indicated, however, that Australian credit spreads are expected to become moderately tighter, according to half of all the respondents.
It also showed that two-thirds of asset owners and managers consider asset-backed securities or structured products to be the best value in the credit market.
This was followed by Australian corporate and senior financial credit.
Sovereign debt was the least-favoured class, according to the research.
Around half of all investors in the study consider credit duration as the most efficient way to add value above benchmarks, followed by credit curve position.
They also believe the best risk return is on the intermediate part of the curve.
The study found credit managers have a number of concerns, including the occurrence of a ‘black swan’ event in China or Europe.
The respondents said they were worried about European politics and a drop in growth in China.
The report also said a third of respondents were concerned about a “more hawkish US Federal Reserve Bank Federal Open Market Committee (FOMC) and a rapid unwinding of quantitative easing that could lead to a sudden rise in interest rates”.
BNP Paribas head of fixed income in Australia James Hynes said despite these concerns investors remain “positively disposed to credit as an asset class”.
“The market is looking more optimistic than it has for some time,” he said.
