Three charts show how emerging markets are getting crunched by their corporate debt boom
The combination of growing debt levels and slowing debt was dubbed the "third wave" of the financial crisis by analysts at Goldman Sachs recently. Taken together, that's a recipe for a string of defaults.
A note published by researchers at UBS comes with a bundle of charts on the debt problem faced by emerging markets. We've broken down the three most concerning here:
- So far in 2015, there's been nearly $5 billion in emerging market corporate defaults. That's more than in any year UBS has on record, showing both how tight debt markets are getting, and how much larger a part of the world economy emerging markets now are.
- Though companies have been able to roll over their debt - pushing the repayments into the future - the value of the debts owed has climbed considerably. Over $900 billion in corporate debts will mature in the next three years, and over $1.5 trillion in the next five years.
- The debt service ratio has surged. It's now risen to 11%, the highest since the late 1990s nearly twice what it was 10 years ago. It's now at its highest level in the 21st century so far.
The debt servicing ratio means the proportion of corporate income that's dedicated to just servicing debt interest payments. Not all nations are included, just Brazil, Mexico, Indonesia, Turkey, Russia, South Africa and Hungary.
It's now a percentage point higher than it was during the very peak of the financial crisis. Here's how it looks:
Secondly, there's the nominal amount of defaults.
The breakdown of the defaults across 38 emerging market economies shows how broad the challenge is. It's not just the industrial and energy firms that you might expect: There's been a considerable number of defaults for consumer staples and financial firms.
And here are the maturities. It's clear to see that the can is being kicked down the road. To some extent, that's a good thing, since it means debt markets don't mind rolling the debt over.
But the bars are also getting considerably steeper. There's a large amount due in the next five years. Combine that with the steeper debt servicing ratio, and you have a recipe for trouble:
