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Big emerging-market companies worry investors

Summary

The article discusses the concerns that investors have about large companies in emerging markets. These companies have taken on a lot of debt, much of it in foreign currencies, and are now struggling as interest rates rise and growth slows. This is causing problems in property markets around the world, and there is a risk that this could lead to a broader financial crisis.

Q&As

What are some of the vulnerabilities that investors are looking for that might cause markets to break?
Some of the vulnerabilities that investors are looking for that might cause markets to break include high American interest rates, a soaring dollar, and debt issued by large companies.

How have big firms in emerging economies been borrowing money and why is this problematic?
Big firms in emerging economies have been borrowing money by issuing debt and this is problematic because much of the debt is owed to foreigners and is denominated in foreign currencies.

What are the consequences of this borrowing for emerging economies?
The consequences of this borrowing for emerging economies include a deterioration in companies' balance sheets and an increase in the default rate for emerging-market issuers of high-yield corporate debt.

How are property market troubles affecting firms in emerging economies?
Property market troubles are affecting firms in emerging economies by causing liquidity to evaporate from Vietnamese corporate-bond markets and by leading to credit-rating downgrades and fears of default in Indonesia.

What are the chances of a financial crisis similar to the one in 1997-1998 happening again?
The chances of a financial crisis similar to the one in 1997-1998 happening again are low because governments across Asia have fiscal room to support their economies and hefty piles of foreign-exchange reserves.

AI Comments

๐Ÿ‘ This is a detailed and informative article that sheds light on a potential market crash.

๐Ÿ‘Ž The article is alarmist and paints a picture of an impending doom.

AI Discussion

Me: It's about how big emerging market companies are worrying investors and how they're a prime candidate for where markets will "break" next.

Friend: That's interesting. I didn't know that.

Me: Yeah, it's pretty concerning. Apparently debt issued by large companies has risen relentlessly since the turn of the millennium and now with the covid-19 pandemic, it's only gotten worse.

Friend: That's not good. What do you think the implications are?

Me: Well, if these companies are in debt and struggling, it could lead to a domino effect and cause a financial crisis not just in the emerging markets, but globally.

Friend: Yeah, that makes sense. I hadn't thought of it that way.

Me: Yeah, it's definitely something to be concerned about.

Action items

Technical terms

Emerging economies
A country that has a lower level of economic development than developed countries, and is therefore considered to have a developing economy.
Developing countries
A less developed country (LDC), is a nation with a lower living standard, underdeveloped industrial base, and a low Human Development Index (HDI) relative to other countries.
Foreign exchange reserves
Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back its liabilities, including the domestic currency issued, and used to intervene in the foreign exchange market to influence the exchange rate of the domestic currency.
Default
A failure to repay a debt.
High-yield corporate debt
Corporate debt that has a higher risk of default than investment-grade corporate debt, but also offers a higher yield.
Bond
A bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include government bonds, corporate bonds, and municipal bonds.
Yield
Yield is the income return on an investment. This refers to the interest or dividends received from a security and is usually expressed as a percentage of the price.
Legoland Korea
Legoland Korea is a theme park in South Korea that opened in 2017.
Vietnamese corporate-bond markets
The Vietnamese corporate bond market is the market for corporate bonds issued by Vietnamese companies.
Indonesian developers
Indonesian developers are companies that develop and build properties in Indonesia.

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