Governments and corporations in developing countries borrowed from foreign markets in large quantities in early 2021, but economists say the risk is growing as other countries endure the resumption of coronavirus.
Borrowing through eurobonds – loans offered overseas, mainly in dollars, euros and yen – peaked in the three months to March, earning up to $ 191bn, according to Dealogic and Moody’s Investors Service.
The increase in first-quarter issuance was particularly strong among borrowers accounted for in the stock market, which, in turn, indicates the importance of risk factors.
“Sales and demand are all in play,” said Atsi Sheth, head of Moody’s upcoming markets. “In terms of sales, there is a need for more money for the government and companies in the emerging markets, and in key terms, the global economy is still alive and well.”
But with more developing countries battling the epidemic, and the offshore yields have plummeted since early 2021, the number of potential economic crises for EM has increased, researchers and investors say.
The IMF this month predicted global growth next year and next year, but warned of “a different recovery”, with major parts of developing countries not performing better than most economies and, in some cases, worse than previously expected.
Indian currency fell as the new and dangerous wave of coronavirus threatens its survival. The country launched a tragic event Wednesday, reporting a global record of 315,000 coronavirus infections, surpassing the US average earlier this year.
Brazil’s economy, which is expected to cost more to import its goods from China, is instead a threat to be destroyed as its leaders retreat against the barriers and the virus spreads unchecked. The death toll has risen again in Central and Eastern Europe.
“The presence of the epidemic is crucial for recovery and the coming big markets are non-existent,” Sheth said.
The economic crisis, too, is changing. Shortly afterwards, a major outcry in the upcoming markets for the outbreak, traders returned to flood, with Joe Biden’s election as US President last November and the launch of a vaccine in the developed markets helped run a major emergency meeting this year.
In early 2021, said Phoenix Kalen, a market expert at Société Générale, “we were in a place where things seemed to be going awry”. EM funding was on the rise, rising electricity prices and yields in the United States had not yet taken off and many finance ministers and investors in developing countries were able to take advantage of old-fashioned credit opportunities, expensive loans.
Since then, corporate yields in the United States and expected inflation have grown, and the pressure on inflation has intensified around developing countries – perhaps, most countries, due to the economic downturn.
“Going forward, things will get worse,” Kalen said. With the instability back in the stock markets, “finance ministers will be reluctant to give foreign currency and leave it at risk for currency changes”.
Dangerous bags are available. The Brazilian government, in particular, has borrowed from the domestic market much slower than before the epidemic, increasing the likelihood that it could be difficult to repay its debts if growth fails to come out this year.
“Brazil is well known,” said Tatiana Lysenko, a developing economist at S&P Global Ratings. “She is at high risk of going back because of a temporary debt she owes.”
Some experts warn that emerging markets may return to normal, even in the face of the virus.
Arend Kapteyn, an economist at UBS, says the “big change” that will occur when families break up and start spending more and more on labor and less on sales, will help emerging markets.
“For EMs, we say if they are upset by this,” he said. “If anyone has [from the pandemic-induced growth in goods trade] is in Asia, and as it cannot be rectified, it may be lost. ”
For emerging investors, says Bhanu Baweja, a UBS technical expert, it will be “a very difficult task from now on”, as the forthcoming stock market is performing much better than the new ones.
“A lot of driving stuff [bond] high prices – widespread overcrowding, high commodity prices, rising global trade – all of these things happen. From now on, the spread of debt continues to grow. ”
The researchers say the long-term risks are also increasing. Many lenders have entered the epidemic with a growing tension growing. Although past problems have encouraged change in some cases, this seems unlikely at present, Lysenko said.
“In this case, I don’t think we’ve seen this spread,” he said. “On the contrary, we are deeply concerned that the expected change may be delayed.”