As Germany embarks on boosting fiscal spending, Portfolio Managers Denis Struc and Ian Bettney take a deep dive into CLOs, how the asset class is poised to benefit, and why a robust credit approach is essential.
Germany’s fiscal expansion
Within the broader financial landscape, the fundamental credit within Collateralised Loan Obligations (CLOs) can be influenced by macroeconomic policies and fiscal shifts. As Germany embarks on a significant pivot in its fiscal policy, emphasising enhanced expenditure on defence and infrastructure, the ramifications for corporate borrowers within CLO portfolios warrant closer analysis.
Such a fiscal stance, diverging from Germany’s traditionally conservative budgetary practices, heralds a potential uplift in Germany’s economic trajectory. However, it also introduces a complex layer of considerations for investors and analysts closely monitoring the performance and stability of corporate borrowers in a changing economic landscape.
In this analysis, we focus on the industries and sub-industries that may directly benefit from German fiscal expansion, such as manufacturing, construction, chemicals, aerospace and defence, transportation, telecommunications as well sub-sectors within technology. However, given the magnitude and urgency of economic expansion driven by national and global geopolitical developments, other industries such as paper and packaging, parts of healthcare (namely biotechnology and pharmaceuticals), as well as broader commercial service sectors, may also stand to benefit.
