The potential to unleash ‘third phase’ of the Global Financial Crisis.
It seems like only yesterday that a cacophony of voices – our own included – was warning about the dire threat posed to global economic stability by unraveling hard currency-denominated emerging market debt. Then, roughly six months ago, everything went quiet.
And the debt began growing again.
So far this year $153 billion of new EM corporate foreign currency debt has been issued, according to Citigroup. That’s 7% higher than the same period last year. No reason to worry, say Citi’s analysts W. R. Eric Ollom and Ayoti Mittra. So-long as the appetite for high-risk debt remains unabated, indefinitely, EM companies should be able to handle their need to roll over their foreign currency bonds and loans.
‘The TINA trade (‘There Is No Alternative’) remains a strong force in the market as investors search the world for higher yields in a low rate universe,’ the Citi analysts conclude. ‘We recommend investors remain long the asset class.’
This post was published at Wolf Street by Don Quijones ‘ September 22, 2016.