Thursday, February 18, 2016

A Map Of Emerging Market Pain Points

Alphaville's David Keohane IS today's King of Pain.
And speaking of which here's a nasty little cover from Mudvayne while you peruse:

Following on his earlier "JPY pain, charted and extrapolated".
From FT Alphaville:

You are here, an EM pain roadmap
Do click to enlarge, any complaints to UBS, where credit also resides:
The biggest piece of that map revolves around the question of why EM corporate credit hasn’t blow up. The answer, say UBS, lies partly in the fact that a lot of EM corp debt has been taken on in the form of loans, not bonds that can be actively traded, and that an increasing amount of the borrowing is now in local currency terms.

But it lies mostly in the fact that about 35 per cent of it isn’t private, and that rises to 75 per cent in some really stressed sectors — “in the beleaguered oil and gas sector, for instance, about 70% of debt has been issued by quasi sovereign companies”:
Which of course involves a price for equities (think SOEs in China and their low profitability) and the sovereign to eventually pay — “unlike DM, government-suppressed pain in one EM sector hurts the government’s credit, and thereby transmits a higher cost of equity to companies across the entire economy, even to profit maximising businesses in fundamentally sound sectors. Credit weakness in EM credit may start with a lag, but will likely do broader damage, and be more enduring.” Enduring because as the government yield curve starts to move the financing cost of every company goes up. See the map above for more and watch financials for the signs of real sovereign pain:...MORE