Thursday , December 9 2021

Global leverage, overview | FT Alphaville



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Despite the post-crisis debt reduction efforts, there is still a lot to do. 320 percent of global GDP, to be more specific.

A new macro-stock report at HSBC Global Research agreed to our mailbox at the end of last week, which contains all kinds of beautiful charts on the topic.

Here are the three most interesting charts from the note.

Debt Service Coefficient

Red bars show the effect of an increase in the base interest rate of one percentage point to the percentage of household income currently being spent on servicing the debt or black dot. Therefore, in Finland, an increase in interest rates of 100 basis points will affect the percentage of interest income in the amount of 38 (or so) base points, with 7.4 percent of revenue, to 7.7 percent of revenue.

There are two things in this chart, none of which goes hand in hand after the crisis.

First, some of the most stable economies in the world, such as Australia and Canada, are the most sensitive to the rise in prices. The reasons vary, but both Australia and Canada are exposed to the same global forces.

Australia, as Dan emphasized in August, has a housing facilitation market after nearly two decades of rocket growth:

To keep pace with Joneses, the Australians had to take huge mortgages to afford housing. Low global rates, and therefore affordable mortgage payments, have further accelerated this trend. With FED raising rates, the Reserve Bank of Australia is under pressure to monitor the appropriate case. Last week, he kept a 1.5 percent cash rate after warning of stricter loan conditions in October. Then the threat to family income, with the fall in house prices and potentially higher funding costs, is acute.

Canada, another manufacturing manufacturing company, is facing similar winds. Likewise, it had a balanced urban property market, partly stimulated by money from abroad (mainly from China) and low rates. See this FT chart of Vancouver property prices versus US neighbor Seattle:

Hence, risks are richer for those with long property in Australia and Canada.

Another, related point of interest is how countries often perceive as economically backward countries – especially southern Mediterranean countries, such as Italy and Spain – are much less sensitive to the rate. For all of its national monitoring of fiscal prudence, an average German household spends most of its revenue on servicing debt than in Italy.

Debt in foreign currency, by country

Turkey and Argentina watched the economic collapse during the flight during the summer, as countries and its corporations owed too much. But there was not just any debt, the debt was denominated in US dollars.

As the dollar strengthened about 10 percent against its peers since mid-February, currencies in emerging markets have weakened. And since these local currencies donated less loans, repayment of this debt became much more difficult.

Of course, what happened in Turkey and Argentina was partially self-contained – Turkish President Recep Tayyip Erdogan avoided economic orthodoxy and Argentina, initially halted the creation of (probably) necessary fiscal cuts – but volatility (which saw Turkish lira lost the third its values ​​this year and a peso from Argentina, almost half) the wider market in the market widespread at a high level of alert.

As the fears of contagious diseases went through global markets in August, a line formed between those with and without a bunch of debt expressed in dollars. As the HSBC chart shows, all developing markets did not have to worry. Almost half of the debt from the nonfinancial sector of Argentina in the first quarter of this year was denominated in dollars. Mexico and Turkey also had significant actions.

Chinese debts, on the other hand, are much more than a domestic issue. Although its sector of the non-financial corporate sector has been shrinking from debt level to GDP by more than 160 percent, only the fraction is denominated in dollars. Moreover, if the Chinese currency is under pressure, the country has reserves of foreign exchange reserves of 3 tonnes to suppress any concerns. Turkey and Argentina had far reaching pillows to recover from the size of their economies.

Growth is still progressing

For HSBC, these high levels of debt are still not a systemic hazard, as many countries continue to grow relatively fast. In the arithmetic of calculating debt to GDP, if the denominator grows faster than the numerator, there is no problem.

The data on GDP in the third quarter, analysts write, were "stable" out of the euro zone, and the direct collapse of growth was not on the cards. What is more likely is a gradual slowdown in growth, especially if the high tax tax of Trump is not accompanied by more fiscal juices.

Of course, would the Federal Reserve accelerate the time-limit for tightening the rate, developing markets could feel sharper before investors move to higher yield (and more secure) US assets.

The last point of the HSBC relates to the balance sheet of other countries, that is, the property that it owes. Often, in the heated discourse on fiscal positions, commentators forget that debt is sometimes taken over to finance assets. If we go back and look at global state assets minus the debt, according to HSBC, almost everyone is at a healthy level. In other words, they have a certain capital.

That is, apart from the UK:

. . . where the lack of resources and large pension obligations mean that Great Britain is the only country in the sample below, where the level of net worth is worse than the simple statistical state of the public debt.

With a certain geopolitical event that appeared on the horizon, some would say that this scenario is likely to worsen before it gets better.

Related Links:
Chinese property, map – FT Alphaville
From the crisis, the preference for the debt market over bank loans – FT Alphaville
Another reminder that the US dollar is dominant – FT Alphaville

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