© Reuters. FILE PHOTO: A Wall Street sign is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., July 19, 2021. REUTERS/Andrew Kelly
By Chiara Elisei
LONDON (Reuters) – The financial health of companies will worsen around the world this year, with no respite amid signs that inflation has peaked and hopes of an economic soft landing, asset manager Janus Henderson said. in a report released Monday.
Indicators on its global credit risk monitor — debt loads, access to capital markets, cash flow and earnings — lit red in the fourth quarter of 2022, signaling caution for investors.
The firm, which manages about $275 billion in assets, expects earnings growth to weaken in 2023, with energy and input costs eroding companies’ cash flows.
While business financial metrics have been resilient thus far, the second half of 2023 is when corporate margins will decline as consumer confidence weakens and higher interest rates hit, according to the study.
All of the companies it tracks in the global regions had flat or negative earnings forecast revisions for this year. Then earnings are expected to pick up in 2024, particularly in emerging markets.
Although a soft landing for the economy seems more likely, the asset manager remains cautious as the decline in inflation is too late to prevent further deterioration of the credit cycle.
He said economic activity data points to a recession and government bond yield curves have moved further into inversion territory, often a reliable sign of a coming recession, while central banks continue to withdraw liquidity. and spikes in inflation-adjusted rates translate into high borrowing costs.
More positively, a buoyant market for debt sales signaled strong demand for credit, although that may not last.
The risk premium on US and Euro investment grade corporate bonds has fallen by around 19 basis points since the beginning of the year. The cost of insuring exposure to junk debt has fallen 86 bps, according to S&P Global (NYSE:) Market Intelligence.
“Optimism in a central bank withdrawal has allowed markets to reopen, but this too may prove fleeting,” said Jim Cielinski, the firm’s global head of fixed income.
“We are not out of the woods yet, although the decline in inflation seen over the past three months is a critical prerequisite for the elusive soft landing that investors appreciate.”
