A trillion dollar money manager is reducing its exposure to Australian retailers as debt risks mount

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  • Global asset manager PIMCO said corporate debt issued by Australian real estate and retail companies no longer represents good value.
  • The fund expects that a reduced domestic consumption outlook will weigh on earnings.
  • PIMCO is shifting its focus towards the infrastructure and energy sectors.

Global investment fund Pacific Investment Management Co. (PIMCO) is reducing its exposure to key sectors of the Australian economy.

According to Bloomberg, PIMCO is reducing its exposure to Australian bank debt. The asset manager is also selling down its holdings of bonds issued by real estate investment trusts (REITs) and retailers.

That re-positioning is reflective of a more more pessimistic view about Australia’s consumption outlook — the biggest component of GDP — due to high levels of household leverage.

According to PIMCO — which manages around $US1.75 trillion globally across multiple asset classes — the spreads offered on the debt issued by companies in those sectors no longer represent sufficient value for the inherent risk taken on by the purchaser.

“We don’t think there’s a lot of premium in the current levels of spreads to act as a buffer or provide protection for any unexpected negative news in the market,” said PIMCO senior vice president Aaditya Thakur.

The Bloomberg report also said that Sydney-based fund manager AMP Capital is targeting opportunities to place short bets on highly leveraged Australian real estate companies.

AMP expects some isolated incidents to occur when overly indebted companies come under pressure amid an environment of rising interest rates, as global central banks steadily tighten monetary policy.

Insititutional investors have found Australian corporate bonds an to be an attractive asset class over the last five years, which offered a significant yield premium to government debt.

But steady demand has seen corporate bond yields decrease, at the same time as global benchmark interest rates are beginning to rise.

While its moving away from real estate and retail, PIMCO is positioning its debt holdings towards sectors which are seen as the next key drivers of Australia’s economic growth — infrastructure and energy.

The fund manager may be a buyer of debt from companies involved in pipelines, toll roads and airports.

You can read more on Bloomberg here.

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