More on Emerging Market Corporate Debt

Yesterday, I discussed a new World Bank report that highlights the effects of the financial crisis on the corporate debt market: "The impact of the current crisis in developing countries has been transmitted primarily through the corporate sector." 

There are three core concerns about the strength of the corporate debt market:

1. Short-term FX liabilities, which are difficult to meet as the value of local currencies dwindle;
2. Huge corporate losses in derivatives; and,
3. Mercurial attitudes of foreign investors in local bond markets, which leave corporations vulnerable to investor whims.

Following the current economic cycle from boom to bust, emerging market corporate bond issuance increased by 430 percent between 2002 and 2007, only to fall by 37 percent in 2008. However, not all is doom and gloom. For those in search of green shoots, Bloomberg recently reported:

Bank of America increased its 2009 forecast for emerging-market corporate debt issuance to $35 billion from $20 billion as investor demand for higher-yielding assets picks up.