Private credit is a concern due to its limited liquidity in times of turbulence

Why are disruptions occurring in the private credit sector? It is a form of financing that has become increasingly popular in recent years, but due to its limited liquidity, it is among the first to be impacted when problems arise, according to Alberto Matellán, General Manager of La Financière Responsible.

In his view, there does not appear to be an imminent risk of a financial crisis associated with private credit, as although this type of asset has grown in popularity, it has been sold primarily to knowledgeable investors who understand the associated risks. “It will be something to monitor over the coming months,” he adds.

Despite concerns stemming from private credit, other market indicators are showing more positive signs. Stock markets are rising again despite the conflict in the Middle East. “The market adjusts very quickly, with a sharp initial correction that establishes a new equilibrium, which remains unchanged unless new information emerges,” explains Matellán. This is linked to the fact that there is a lot of liquidity in the market and that the emerging macroeconomic data being released is not bad, although it still does not reflect the impacts of the conflict.

Matellán is clear that the impact of the conflict “sooner or later will affect the GDP,” as it will negatively impact disposable income and, therefore, consumption. “In this crisis, there is no impact on prices,” he notes. “Therefore, the real and troublesome impact is not the prices, but the consumption.” The timing and duration of the conflict will determine the intensity of its impact.

The Eurozone CPI data shows a two-tenths increase, raising the year-on-year figure to 1.9%. This figure does not yet reflect the impact of the conflict. It is expected that upcoming data will capture this effect. It is important to assess whether the increase is truly limited to conflict-related factors or if it reflects something deeper. The 1.9% figure is in line with the ECB’s target, and although there have been inflationary pressures, prices do not appear to have risen significantly.

These conditions should not prompt major central banks to act hastily. “The Fed and Lagarde are expected to send a similar message in the coming days,” says Matellán. With the current circumstances, the macroeconomic context takes a back seat. The impact is important, but the most urgent priority is to send a message of caution to the market. A sign that the teams at both central banks are carefully evaluating everything and considering all possible scenarios.