Legal Commentary

Patience Is A Virtue

By Matt O'Brien

The much talked about era of distressed funds has yet to arrive. Don't get too impatient. Many analysts  expect a slowdown in corporate profits over the next 12 months, which means debt-laden companies could struggle and eventually become crippled by a slowdown in the global economy.

"A net 60 percent of fund managers now expects corporate profits to deteriorate in the next 12 months ? the most pessimistic response in almost a decade ? while a net 62 percent expects the global economy to weaken," a Wednesday Merrill Lynch press release states. If this prognosis is correct, distressed debt funds and vulture investors will shine in late 2008 and throughout 2009.

"Investors' love affair with emerging markets continues despite a sharp rise in the number of fund managers expecting a slowdown in China's economic growth. A net 25 percent of respondents expect the Chinese economy to weaken in 2008. Only 4 percent in took this view in November," Merrill analysts found.

I would imagine distressed debt managers will wait for bond valuation to come more in line with market conditions. The Merrill poll found that a net 13% think equities are undervalued while a net 43% believe bonds are overvalued.

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Full post as published by Vertical Pulse on December 20, 2007 (boomark / email).