Concerns about high global debt levels have returned to the fore following the election of Donald Trump as US president.
According to the Institute of International Finance (IIF), subdued growth and weaker corporate profitability present “significant challenges” along with a stronger US dollar and higher hedging costs.
Brexit is also a problem because London is an important centre for debt issuance and derivatives – especially for European and emerging market firms – and uncertainty about details of the UK’s departure from the EU could pose risks including higher borrowing and hedging costs.
The total global debt has topped 325% of GDP, with government debt rising sharply last year by $5.3 trillion (€5.1 trillion) to a total of $60 trillion.
For investors in non-financial corporate bonds, this sector is more indebted than its government counterpart, coming in at $63 trillion.
While there was a brief resurgence in emerging market debt investment last year, total emerging market debt has surpassed 217% of GDP by the third quarter of last year. Despite this growing debt burden, there was record issuance of bonds totaling $1.4 trillion, with China representing 75% of paper issued.
Fortunately, the majority of emerging market issuance was in local currency, so will be in some part insulated from Federal Reserve interest rate hikes. Read about the attractiveness of Asian bonds here.
©2017 funds europe
