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Economic Analysis

The world of economics is in a constant state of flux and has shifted from an essentially US-based focus to Asia's point of convergence. After many years of driving economic growth, the pull of global wealth has shifted and is now largely concenrated in this region, and we analyse its structural success.

Asia Experiences Debt Defaults Spread

  • February 24, 2016
  • By Hillary Gould, Pacific Alliances

The region's rising bond defaults look like they will inflict as much pain on creditors as the financial crises of 2008 and 1998.

The distress signals have spread from mining to shipping retail to construction sectors and secured creditors recover only less than 33 per cent compared with more than 80 in the US, according studies carried out at the World Bank.

The trough in mining cycle is continuing and it will be a while yet before any significant recovery is realised. The lower end of the markets is unlikely to be too different from those in the past crises.

Bad loans in Singapore rose to a six-year high last year and rating firms targeted energy and mining companies for downgrade review. Energy firms were among over a hundred global bond defaults last year, according to Standard & Poor's, as Chinese growth slows.

A Singaporean law firm has seen a 30 per cent rise in restructuring and insolvency work over the past two years and sees similar trends to the shipping industry following the shrinkage in oil and gas prices. Construction is also set to experience tough times.

The creditworthiness of Asia's junk-rated borrowers has weakened as investors sought the highest risk premium to own their debt. Disputes in Asia's credit markets have also wiped out more than $11 billion of junk-bond value, while Moody's said in January the negative rating trend for Asia's non-bank corporates will worsen in 2016.

Hillary Gould

Hillary joined Pacific Alliances in 2009. She started her career in Sydney, Australia, where she was responsible for their international equity exposure. In 2001 Hillary was named Chief Investment Officer of the Asset Management Strategy Partnership and in 2003, she moved to Asia.