Bumpy road to recovery

While banks and financial institutions may well have turned a corner post the bursting of the credit bubble, the global economy and companies exposed to it have yet to feel its full effect.

"It is important to recognise that although corporate spreads are compensating for a certain level of defaults, we are yet to see the extent of the damage caused by the credit crunch to consumers and smaller companies," said Adam Mossakovski, credit fund manager at F&C.

He added: "We have now moved a long way back and it is important to refocus on the underlying fundamentals. Banks are beginning to repair their balance sheets and scale down their operations, the size and severity of writedowns are abating, and we have now seen several large institutions go to shareholders for more funds in the form of rights issues. Such action will prove positive in the longer term."

"In the short term, however, there is every possibility of more bad news, further writedowns and a partial undoing of the spread tightening we have seen over the last couple months."