Tuesday, 27 September 2016

New analysis reveals star performers in global debt league

Emerging markets are doing great, apparently. / Yes, it's the Tuesday morning PR email, back by popular demand. 'Er ... Monday night, boss.' No. Tuesday morning, by the time I've posted it. I do actually know what I'm doing, you know. I have been writing this blog for close to ten years, idiot! 'All right, all right. Keep your hair on. What's this all about, anyway?' Christ!

According to research carried out by Source, one of the largest providers of Exchange Traded Funds (ETFs) in Europe, of the world's 20 largest economies, the 10 most indebted countries relative to their economic output in 2015, (including governments, non-financial sector corporates and households) were all developed, with Japan (396% of GDP), Netherlands (326%) and France (310%) the highest. South Korea (233%) and China (233%) - at 12th and 13th respectively - had the highest total debt among EMs, although their levels were still below the global average of 240%. On the assumption that debt owed by governments is of a higher quality than that owed by corporates, Indonesia and Mexico are the best placed, with corporate debt amounting to less than 25% of GDP. India (48%), Russia (52%) and Turkey (54%) are not far behind.

'Oh.' Oh, indeed.

Paul Jackson, Head of Research at Source, commented: "The most striking feature of our analysis is the relative 'lack' of debt in emerging economies. Even China, which has been the focus of debt concerns in recent years, was less indebted than the global average in 2015. If investors are worried about debt in China they should really be worried about some other countries, in particular Japan, the Netherlands and France. 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. Indeed, debt/GDP ratios in most emerging countries are well below global norms."

And there's more!

A major differentiating factor is the ownership of the debt - that held domestically is less of a threat to an economy than if it is held by foreigners, Source says. Many emerging countries are self-financing and do not have the dangerous cocktail of growing debt financed externally. Among countries with low external debt/GDP ratios, Source would highlight Indonesia (34%) and Russia (39%), as they have also reduced their total debt/GDP ratio since 2000 (by 32% and 3% of GDP, respectively). Traditional "safe-havens" such as Germany (147%) and Switzerland (231%) have high external debt/GDP ratios but also have a lot of external assets (they are serial current account surplus countries) and their net international investment to GDP ratios are 48% and 92% respectively. Russia also has a positive NII/GDP ratio at 26%.

You see, Voice? 'Yeah.' So, that's it. 'Can we have a final word from Paul Jackson? I like him.' Oh, if you insist.

Paul Jackson added: "If we are searching for a so-called safe-haven, our analysis suggests Switzerland may be the best placed traditional candidate given that Germany suffers from its euro area associations. More controversially, Indonesia and Russia appear to have many desirable qualities but we doubt the market will recognize them anytime soon."

Well, well ... / Ha! Of course, if everybody paid everybody else back, there wouldn't be any debt. 'How do you work that out, boss?' Think about it, man. Everybody seems to be in debt, yeah? 'Yeah.' Everybody owes everybody else money. So, they just gotta pay all the debts back. Simple! 'I don't understand.' Christ! Imagine that Pete owes £5 to Dave, all right? 'Okay.' And Steve owes £5 to Pete. And Dave owes £5 to Steve. And then Graham owes £2 to Steve. And - 'One question.' What? 'Who are these guys?' They don't exist. I just made them up, as an example. 'Eh? An example of what?!' Oh, listen, never mind. You just stick with your fucking ignorance! The readers know what I'm talking about.


Has he gone? He's gone now. Let's have some music. Brian Eno's Apollo.