No Balance Sheet Stress Within EM Corporates

December 29, 2015 |Author: EGA Investment Strategy | Categories: Chart of the Week, Emerging Markets


EM Corporate Debt Creep? Investors and media alike have voiced alarm that emerging market (EM) corporates have issued too much new debt, enabled by the improved ratings of EM sovereign debt and global investors in search of high yield in the low interest rate quantitative easing (QE) environment. Corporate bond issuance from developing countries has nearly doubled since the onset of the Great Recession (December 2007) to $6.8 trillion.1

Not this time. However, corporate debt should be considered on a net basis of gross liabilities net of gross assets. Like total EM, U.S. dollar debt (sovereign, corporate and individual) has grown rapidly in absolute terms, but not as a share of gross domestic product (GDP) levels (Is U.S. Dollar Debt a Concern for EM? ). When looking at EM corporate balance sheets, the chart above shows that EM corporate net debt-to-total equity has been in a narrow range since 2000, after substantial deleveraging following the 1997 Asian Contagion crisis. Relatively, little corporate debt growth has come from the most vulnerable countries – Brazil, Russia or Turkey – or sectors most likely to be caught with currency mismatches, such as construction and retail.2    

 
1 Institute of International Finance, June 2015.
2 Ibid.

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