Credit markets continued to swing around in January, following on from the theme of the past few months

Credit markets continued to swing around in January, following on from the theme of the past few months. Globally, continuing signs of strength out of the US plus significant stimulus from the ECB was offset by further concerns regarding Chinese and Japanese growth. Domestically, the RBA sent a clear message with its 25bp rate cut that lower export prices, lower inflation and higher unemployment are likely to see the Australian economy operating at below trend pace. We think asset market volatility is likely to be with us for a little while yet. However, we think the backdrop of materially lower oil prices, a large adjustment in global currencies (particularly the $A), and interest rates among most major economies at or near all-time lows, presents a particularly favourable environment for many corporates. Thus, we are confident that taking advantage of this environment (i.e. where in some cases credit spreads are reflecting significant fear rather than fundamentals) will prove to be a sensible strategy longer term. In the interim, we are pleased to protect investor capital through this period of market instability.