- Credit remains strong, underpinned by economic growth and accommodative monetary policy
- A selective approach is key, while we expect strategies emphasising downside protection and stable income to perform well
- Corporate fundamentals remain solid, though investors should pay attention to emerging risks
This article is part of our 2026 Investment Outlook.
Resilience amid global shifts
Global markets have shown remarkable resilience despite persistent geopolitical tensions and evolving trade dynamics. Since the implementation of the ‘Liberation Day’ tariff measures, risk assets – particularly credit – have remained strong, supported by resilient economic growth and increasingly accommodative monetary conditions.
While tariffs have weighed on global trade, recession fears have yet to materialise. The US economy has decelerated to a more sustainable pace, supporting global demand without reigniting inflation pressures. In Europe, fiscal stimulus tied to infrastructure and defence investment has helped counterbalance external headwinds. The new transatlantic trade framework has also bolstered investor sentiment toward European assets.
Credit dynamics
The global economy has continued to benefit from lower benchmark interest rates. Meanwhile, persistent investor demand for credit assets has driven a tightening trend in credit spreads throughout 2025. These conditions have eased refinancing pressures and improved capital access for corporates.
Merger and acquisition (M&A) activity has remained dynamic, with global deal value reaching US$2trn in the first half of 2025, up 15% year on year.1 The US market is characterised by larger deal sizes, while Europe has seen a higher volume of transactions, supported by accommodative monetary conditions and attractive valuations.
We anticipate increased private credit financing to accompany this M&A momentum. Corporate fundamentals remain solid. Companies have effectively adapted to elevated input costs through operational efficiency, faster inventory turnover, and diversified supply chains. On the consumer side, balance sheets – particularly in Europe – remain healthy.
Private credit continues to expand, though investor inflows are beginning to outpace investable opportunities in certain segments. As a result, manager selection and origination capabilities are becoming increasingly critical. Identifying asset managers with strong sourcing and underwriting expertise is essential for effective capital deployment. Additionally, we expect further consolidation in the private credit space through acquisitions and strategic partnerships.
Identifying asset managers with strong sourcing and underwriting expertise is essential in private credit
Risks and differentiation
Despite strong performance, emerging risks warrant attention in light of the recent corporate defaults of US car parts company First Brands and sub-prime car finance lender Tricolor. These events underscore the importance of selectivity and rigorous credit analysis. Credit spreads remain tight, and signs of stress are surfacing in sectors vulnerable to tariffs and fiscal tightening. Loan downgrades are outpacing upgrades, highlighting growing dispersion between sectors and issuers.
Investment implications
We remain constructive on alternative credit, but stress the importance of selectivity. Strategies emphasising downside protection, stable income, and disciplined underwriting are likely to be the best positioned in the current environment.
We see potential attractive opportunities in areas including commercial real estate debt and specialty finance, such as Significant Risk Transfer (SRT), and Asset-Backed Finance (ABF). Europe is benefiting from renewed capital inflows and policy support and offers opportunities for diversification and potential long-term value. Retail participation in investing is also rising, driven by the launch of evergreen semi-liquid funds – flexible, open-ended investment vehicles – under the European Union’s Long-Term Investment Funds 2.0 framework. However, private wealth remains under-allocated to private credit, presenting further growth potential.
[1] PitchBook, June 2025.
