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$5 Trillion EM Debt Bubble Begins To Unwind——-FX Turmoil Ahead
davidstockmanscontracorner.com / By Ye Xie and Andrea Wong at Marketwatch /
Borrowers in emerging markets have started to address a $5 trillion mountain of dollar-denominated bonds and loans, reducing their obligations for the first time in seven years in a move that threatens to cut short a budding rally in currencies from Brazil to Malaysia.
Companies in developing nations paid back $38 billion of dollar debt last quarter, $3 billion more than they borrowed in the period and marking the first reduction in net issuance since 2008, according to data compiled by Bloomberg. Demand for greenbacks among borrowers needing the currency to repay debt is contributing to the largest capital outflows in almost three decades.
The borrowing binge, which took off in the wake of the global financial crisis as interest rates tumbled, may now be reversing as economic growth slows, commodity prices fall and lenders demand higher yields. While developing-nation currencies are rebounding from their record lows, analysts surveyed by Bloomberg expect the depreciation trend to resume as dollar debt repayments accelerate.
“This is a massive event,” said Stephen Jen, the co-founder of London-based hedge fund SLJ Macro Partners LLP and a former economist at the International Monetary Fund whose bearish call on emerging markets since 2012 has proven prescient. “They want to pay down their dollar loans. We are early in the game, there’s pretty intense pressure on emerging markets.”
Currency Rebound
After falling for most of this year, emerging-market assets have gotten a respite in recent weeks as weaker-than-forecast economic data fuels speculation that the Federal Reserve may postpone until next year its first interest rate increase since 2006.
The Indonesian rupiah has led the rally, gaining 8 percent this month, followed by the Colombian peso’s 7 percent advance. A Bloomberg gauge of emerging-market currencies fell 0.4 percent as of 10:26 a.m. in New York, trimming its advance to 4.6 percent since Sept. 28 when it reached an all-time low.
The post $5 Trillion EM Debt Bubble Begins To Unwind——-FX Turmoil Ahead appeared first on Silver For The People.
Source: http://silveristhenew.com/2015/10/18/5-trillion-em-debt-bubble-begins-to-unwind-fx-turmoil-ahead/
