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A Global Slow Down and Emerging Market Debt – Concerns Grow

A Global Slow Down and Emerging Market Debt - Concerns Grow

Many of the Emerging Market countries and their global companies have been enjoying a great 10 year expansion and have taken on a lot of debt as a result. However, slower global growth and rising funding costs will make servicing debt harder in 2019 and beyond. According to the FT in an article that talks about (Jonathan Wheatley, 17 January, 2018), concerns raised by the Institute of International Finance, a Washington based group, this could mean less investment in the future and possibly more borrowing. 

This body is now saying that as debt is being serviced by these companies, they will use capital for these purposes and it will be diverted from more productive areas. Of most concern is the non-financial corporate sector in emerging markets or EMs were debt is equity to 93.6% of GDP. How will this play out in the future? There are several possibilities but none are positive so this issue is of course a concern.

This problem of debt is going to be acute this year as it is the highest since 2014 for EMs since 2014 when the data was measured for the first time as debt is maturing at an ever faster rate. When these loans come to maturity, there could be stress in the system. 

Turkey saw a mini-crisis in 2018 and we have a feeling that this issue will return in 2019, and not only to Turkey but to other EM nations around the world. And please keep in mind that China has been a major contributor to EM economies over the past 5 years, investing 80 billion dollars into the Venezuela economy and 75 billion dollars in Pakistan. What happens when China sees a real slowdown? 

Team Classiarius


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