No Balance Sheet Stress Within EM Corporates
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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EGA and EGShares Funds are distributed by ALPS Distributors, Inc. Emerging Global Advisors acts as the investment advisor to the EGShares Funds. ALPS and Emerging Global Advisors are unaffiliated entities.
Emerging market investments involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, from economic or political instability in other nations or increased volatility and lower trading volume. Please call +1 888 800 4347 or click here access a prospectus online. Investing involves risk, including possible loss of principal.
Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses, which could reduce returns. Indexes are unmanaged and one cannot invest directly in an index. Performance data quoted represents past performance. Past performance does not guarantee future results. Current performance data may be higher or lower than actual data quoted. For the most current index performance data please call + 1 888 800 4347.
The content of this material is presented for general information purposes only. The statements and opinions expressed are those of the author and are as of the date of this material. All information is historical and not indicative of future results, and subject to change. Readers should not assume that an investment in the securities mentioned above was or would be profitable in the future. This information is not a recommendation to buy or sell. While the information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and it should not be relied on as such or be the basis for an investment decision. This material may include estimates, projections and other "forward-looking statements". Emerging Global Advisors, LLC assumes no duty to update any such statements. Due to numerous factors, actual events may differ substantially from those presented. Past performance does not guarantee future results.
EGA and EGShares Funds are distributed by ALPS Distributors, Inc. Emerging Global Advisors acts as the investment advisor to the EGShares Funds. ALPS and Emerging Global Advisors are unaffiliated entities.
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