UK - Equity markets are being hampered by soaring levels of UK consumer debt, Insight Investment claims.
Worries about the high levels of consumer borrowing have already had an impact on certain sectors - including retail and housebuilding - where many firms have been forced to undergo financial and corporaterestructuring, Insight says.
Recent figures by the Bank of England show consumer debt in the UK has hit more than £1trn, with six million families struggling to keep up with credit repayments.
Insight head of asset allocation Philip Barleggs says concern is spreading: “Another sector which has been affected is media, where advertising to consumers has slowed to an extent.
“Banking stocks, too, could be potentially exposed to a bad debt situation. Consumer debt has been a concern for a long time and with the consumer representing around 60% of GDP, it is an important economic factor to consider when investing.”
However, Insight says other sectors and asset classes are not subject to the same pressures. Despite having high exposure to the personal lending sector, fixed income investments had already priced in the anticipated increases in interest rates, which deepen the consumer debt black hole.
Barleggs said: “We expect that the peak in interest rates will be reached between 5% and 5.5%, considerably calming consumer spending and debt build-up, but without much worrisome downside.”
He added that corporate bonds would be largely shielded from the rise in debt because of the consumerís ability to service the shortfall.
He said: “The gradualist approach of the Bank of England leads us to be comfortable on debt servicing, therefore we think some select higher quality consumer credits can still be attractive.”
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