This Debt Market Trend Is Concerning Experts

China and other emerging market economies have been at the center of global economic fears so far in 2016. In a new report, UBS analyst Bhanu Baweja takes a closer look at the debt issues facing emerging markets and which countries will face the most difficulties in rolling over their debt.

According to Baweja, investors have been generous when it comes to emerging markets rolling over their debt in recent years, but that trend began to change in 2015. Now, a handful of emerging markets are facing an increasingly difficult refinancing environment.

Baweja names Turkey, South Africa, Russia, Indonesia and Mexico as countries facing the most unfavorable borrowing environment in terms of refinancing costs. However, one large name is absent from that list.

“China does not come up as a risk,” Baweja explains. “Local debt problems in China are another matter, but China does not have a BoP issue on external maturities.”

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In terms of market sectors that could be impacted by the increasingly uncomfortable emerging markets debt situation, he adds that financials account for the largest proportion of debt that is coming due in the near future.

So far this year, the iShares FTSE/Xinhua China 25 Index (ETF) FXI is down 15.3 percent, while the iShares MSCI Emerging Markets Indx (ETF) EEM is down just 7.4 percent.

Disclosure: the author holds no position in the stocks mentioned.