By Dimitra DeFotis

After Standard & & Poor &’s downgraded Brazil &’s sovereign debt rating to junk last week, credit in other emerging markets including Turkey and Thailand looks riskier, Capital Economics says in a note today.

Associated Press
Turkish liras, euros and U.S. dollars.

Last week, Brown Brothers Harriman noted South Africa &’s debt is also at danger. There &’s public financial obligation, and personal debt &— — that among consumers and corporations &— — to stressstress over. Capital Economics keeps in mind that Brazil has the second-largest public sector debt ratio of any emerging market, and Hungary has the biggest public financial obligation problem. And while Brazil &’s public debt ratio could be the highest on the planet by the end of 2016, and the ratio is increasing in South Africa and Chile too, the majority of emerging market financial obligation crises have their roots in the fast accumulation of personal debt Capital Economics economic experts Neil Shearing and Liam Carson note. They write:

When personal credit bubbles have then burst, the debt burden has actually frequently been transferred to the general public sector. &… … China and Korea have the greatest ratios of personal financial obligation to GDP, at near 200 %. But privateeconomic sector financial obligation burdens are likewise big in other EMs, consisting of Malaysia, Thailand and Brazil, as well as in Central Europe.

But they note it is not a lot the outright level of debt, however the rapid boost in personal debt that has actually mattered. They note China, Thailand, Brazil, Korea, Malaysia, Turkey and Chile are susceptible for the rapid speed of total debt boosts in between 2010 and 2015. They write:

&”&… … in addition to Brazil, there are a number of EMs where rising debt concerns are a cause for concern. China is one, although the risks are reduced to some extent by the structure of its debt and financial system, and the stamina of the federal government’s balance sheet. Elsewhere, however, Turkey, Thailand – and to a lesser degree, Korea, Malaysia and Chile – look susceptible too. &”

Belief towards Turkey appears to reflect much of this negative belief: the iShares MSCI Turkey exchange-traded fund (TUR), which is up 2 % today, is down more than 32 % this year, while the iShares MSCI Emerging Markets ETF (EEM) is down 12 % and the Lead Developed Markets ETF (VEA) is down 1 %. The iShares JPMorgan USD Emerging Markets Bond ETF(EMB) is down 1.5 % this year

See our post, &”Brazil Markets Could Topple More; Turkey, S. Africa Downgrades Next? &”

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