Emerging market debt levels shame developed economies

A cap weighted sovereign bond index will put the most indebted country at the top – and Japan with a hefty 396% total debt to GDP ratio leads the index by quite some margin.

But analysis from exchange-traded product provider Source shows that investors may be better off investing in some emerging market jurisdictions, which have proven to be ‘stars’ in the global debt league.

Paul Jackson, head of research at Source, said the most striking feature of debt in emerging economies was the relative lack of it. He said that although China has been the focus of debt concerns in recent years, if investors were worried about debt in China then they should really be worried about some other countries, in particular Japan, the Netherlands and France (see table).

The research shows that based on their debt fundamentals, emerging markets are better placed than most developed markets, which make the yield premiums on their bonds even more attractive. In fact, debt/GDP ratios in most emerging countries are well below global norms.

Debt held domestically is less of a threat to an economy than if it is held by foreigners, therefore the firm highlights Indonesia and Russia as ‘stars’ with external debt to GDP ratios of 34% and 39%, respectively. Both countries’ debt is largely domestically owned.

Despite this analysis, Jackson said the market is unlikely to recognise these countries anytime soon.

Total Debt/GDP in 2015 (%) of world’s top 20 economies:

Japan: 396%
Netherlands: 326%
France: 310%
Spain: 301%
Canada:  295%
Sweden:  293%
Italy: 290%
UK: 270%
US: 246%
Australia: 241%
Switzerland: 235%
China: 233%
South Korea: 233%
Germany: 183%
Brazil: 138%
India: 120%
Turkey: 113%
Russia: 84%
Mexico: 71%
Indonesia: 64%

©2016 funds europe

HAVE YOU READ?

THOUGHT LEADERSHIP

The tension between urgency and inaction will continue to influence sustainability discussions in 2024, as reflected in the trends report from S&P Global.
FIND OUT MORE
This white paper outlines key challenges impeding the growth of private markets and explores how technological innovation can provide solutions to unlock access to private market funds for a growing…
DOWNLOAD NOW

LATEST SURVEY

Visit our dedicated Ireland channel for all the latest news and analysis on the country's investment industry.
READ MORE

PRIVATE MARKETS FUND ADMIN REPORT

Private_Markets_Fund_Admin_Report

LATEST PODCAST