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Spiralling debt is pouring fuel on investor anxieties

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Spiralling debt is pouring fuel on investor anxieties

These days, it’s not easy for investors to feel relaxed and comfortable. Pouring more fuel on investor anxieties is a report by the Bank of International Settlement that shows global debt spiralling out of control.

Based on their recently released survey, the Bank of International Settlement’s chief economist, Claudio Borio, said there were ample reasons to worry about the health of the world’s financial system.  Zero interest rates and bond purchases by central banks have left markets acutely sensitive to the slightest shift in monetary policy, or even a hint of a shift.

The historical anomaly of negative interest rates being offered for so much sovereign debt, and now spreading to corporate debt, is underpinning highly valued stock markets at a time when profit growth is more difficult to come by.

26092016_chartOf significance, China’s total credit to GDP hit 255 per cent at the end of the March 2016 Quarter, up 70 per cent in five years, the biggest jump of any country in the survey.  (Australia was up by 47 per cent to 247 per cent of GDP).  China’s outstanding loans of US$28 trillion, is as much as the commercial banking systems of the US and Japan combined.  Of this, corporate debt accounts for US$18.8 trillion or 171 per cent of GDP, and this figure is keeping the global regulators awake at night.

A recent article in China’s state-owned People’s Daily warned their debt had been “growing like a tree in the air” and it is time to accept that China cannot continue to “force economic growth by levering up” and that the country must take its punishment.

Total Credit to the Non-financial Sector (core debt), % of GDP (BIS data)

Country 2010 Q1 2016 Change
Argentina 57.4 69.0 11.6
Australia 200.0 247.2 47.2
Austria 235.9 241.7 5.8
Belgium 291.6 360.2 68.6
Brazil 118.2 146.3 28.1
Canada 253.3 287.3 34.0
Chile 117.6 169.9 52.3
China 184.4 254.9 70.5
Czech Republic 122.1 133.6 11.5
Denmark 302.8 282.2 -20.6
Finland 219.1 254.9 35.8
France 252.4 293.6 41.2
Germany 198.9 185.2 -13.7
Greece 246.0 296.2 50.2
Hong Kong 222.8 282.5 59.7
Hungary 215.9 194.0 -21.9
India 127.0 129.5 2.5
Indonesia 51.5 66.1 14.6
Ireland 399.1 405.3 6.2
Israel 199.2 182.0 -17.2
Italy 244.5 276.8 32.3
Japan 351.9 393.6 41.7
Korea 204.6 237.0 32.4
Luxembourg 418.5 429.5 11.0
Malaysia 169.5 190.4 20.9
Mexico 57.0 78.1 21.1
Netherlands 307.1 309.8 2.7
New Zealand 207.6 208.3 0.7
Norway 268.4 274.2 5.8
Poland 126.4 136.0 9.6
Russia 63.8 88.8 25.0
Saudi Arabia 54.7 74.4 19.7
Singapore 205.0 251.6 46.6
South Africa 106.3 125.8 19.5
Spain 275.2 283.0 7.8
Sweden 262.5 276.2 13.7
Switzerland 227.5 245.6 18.1
Thailand 123.2 154.5 31.3
Turkey 95.6 110.5 14.9
United Kingdom 262.5 266.0 3.5
United States 247.3 252.5 5.2
All Countries 227.9 245.3 17.4
Developed Countries 269.3 279.3 10.0
Emerging Countries 138.7 186.6 47.9
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Chief Executive Officer of Montgomery Investment Management, David has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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