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Emerging Market Debt: Risks In Chile, China, Thailand, Turkey?


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Emerging Market Debt: Risks In Chile, China, Thailand, Turkey?




After Standard & Poor’s downgraded Brazil’s sovereign debt rating to junk last week, credit in other emerging markets including Turkey and Thailand looks riskier, Capital Economics says in a note today.


Last week, Brown Brothers Harriman noted South Africa’s debt is also at risk. There’s public debt, and private debt — that among consumers and corporations — to worry about. Capital Economics notes that Brazil has the second-largest public sector debt ratio of any emerging market, and Hungary has the biggest public debt burden. And while Brazil’s public debt ratio could be the highest in the world by the end of 2016, and the ratio is rising in South Africa and Chile too, most emerging market debt crises have their roots in the rapid buildup of private debt Capital Economics economists Neil Shearing and Liam Carson note. They write:

When private credit bubbles have then burst, the debt burden has often been transferred to the public sector. … China and Korea have the highest ratios of private debt to GDP, at close to 200%. But private sector debt burdens are also large in other EMs, including Malaysia, Thailand and Brazil, as well as in Central Europe.

But they note it is not so much the absolute level of debt, but the rapid increase in private debt that has mattered. They note China,Thailand, Brazil, Korea, Malaysia, Turkey and Chile are vulnerable for the rapid pace of total debt increases between 2010 and 2015. They write:

“… in addition to Brazil, there are several EMs where rising debt burdens are a cause for concern. China is one, although the risks are mitigated to some extent by the structure of its debt and financial system, and the strength of the government’s balance sheet. Elsewhere, though, Turkey,
– and to a lesser extent, Korea, Malaysia and Chile –
look vulnerable too

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I heard recently that China will be building a high speed train from LA to Las Vegas (http://www.latimes.com/local/lanow/la-me-ln-vegas-la-chinese-high-speed-rail-20150917-story.html).. also heard recently from a well respected China expert that this talk about risks WRT China is unfounded. China still looks good to me (but I did sell my China stocks right before the correction last April). I might get back in soon.

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