Global Markets Overview: May 2022

Our 2022 Investment Outlook vs. credit pricing and fundamentals

Financial markets are at a pivotal point in the capital cycle. In advanced economies, the major central banks are beginning to tighten monetary policy and governments are slowing their pace of spending in response to strong growth and high inflation. Keeping track of how economic policy “pivots” (tighter) in 2022/23 and how financial markets are responding is key for portfolio strategy. Recent changes in credit market pricing imply that:

• Investment grade credit is now pricing in moderately above average losses from future downgrades. This is consistent with moderately below trend economic growth in the next few years.
• Corporate leverage is currently average-to-high across advanced economies. This is typically consistent with the later stages of the business cycle.
• However, cash flow measures – e.g., earnings minus debt service costs – show few signs of stress currently. We expect these to weaken in 2023.

To stay up-to-date and receive additional special feature reports from WTW on global capital markets, please contact David Hoile.

Author

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David Hoile

Global Head of Asset Research at WTW

David is the Global Head of Asset Research at WTW, responsible for economic and capital market research. He also is a member of the Investment Assumptions Committee, who help guide investment policy globally.

email Email phone +44 20 7170 2144

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