Macroscope | How Trump’s trade war combined with emerging market corporate debt could trigger a perfect storm
Anthony Rowley says emerging markets have amassed high levels of corporate debt, especially foreign currency borrowings, in the past decade. This, together with Trump’s erratic actions on trade, could be the making of a debt crisis
Bonds tend to attract less popular attention than equities, while bank loans are of interest mainly to bankers. Yet debt crises (the great stock crash of 1929 excepted) generally cause greater damage than equity crises.
This is only to be expected, given that the Asia-Pacific has been the world’s fastest-growing region, but debt-leveraged growth can be a mixed blessing.
Global debt has been building for a decade among corporate borrowers, governments, households and financial institutions, due to historically low interest rates and benign economic conditions. Worldwide debt reached a record US$237 trillion at the end of 2017, according to the Institute of International Finance (IIF). Most of it is in advanced economies, but emerging economies have been amassing debt, too.