Emerging markets: a rising debt worry

INVESTOR concern about the rapid build-up of corporate debt is growing. Ultra-cheap borrowing costs created by loose monetary policy has led companies to aggressively releverage their balance sheets in the aftermath of the global financial crisis (GFC).

In this note, we assess whether we should be concerned about corporate leverage at current levels. We stick to the essentials and analyse debt levels and debt affordability by looking at aggregate corporate data (excluding financials), focusing on four major regions: the US, euro area, emerging markets (EM) and Japan.

The metrics that we use to quantify debt levels include total debt to equity ratios and interest coverage ratios (earnings before income and tax/interest expense).