China Owned the Decade in Bonds as U.S. Kept Equity-Market Grip
It Was China’s Decade of Bonds as U.S. Still Owns Equity Markets
(Bloomberg) -- The decade after the global financial crisis has produced a tectonic shift in debt markets: While banks and consumers across the U.S. and Europe deleveraged, Chinese borrowers went on a binge.
Bonds issued by Chinese entities account for about 12% of debt securities outstanding, up from 2% in 2007, according to the most recent data available from the Bank for International Settlements. The U.S. share dropped by 4 percentage points to 36% while the EU’s shrank by 8 percentage points to 24%. The moves contrast with the relative surge in value of U.S. equities.
Chinese companies and local governments have gotten more accustomed to tapping bond markets in recent years, adding to borrowing from the nation’s banks. But China’s financial system has also swelled since 2007. Assets at the country’s top four banks have quadrupled in dollar terms and now fill four of the top five spots among lenders globally. The growth of debt in China has prompted the government to try a multiyear deleveraging campaign of its own.
Other emerging markets have seen their share rise, too, climbing to 10% from 7% as their outstanding debt more than doubled. Meanwhile, publicly traded equity in companies hasn’t kept up with the pace of rising debt levels -- in China or in other emerging markets.
By the middle of this year, Chinese companies made up about 12% of the total market capitalization of all publicly traded companies, up from 9% in 2007, according to data from the World Federation of Exchanges and calculations by Bloomberg News. Companies from emerging markets -- included in the “rest of world” category in the chart below -- account for 15%. That’s an increase of just one percentage point.
Meanwhile the U.S. equity markets increased their share to 44% from 30% thanks to the doubling of the main indexes in the last 12 years as most others struggled. Some of the emerging market weakness is due to the gains of the dollar against other currencies in the period. Even though the Chinese yuan, which is linked to currencies including the dollar, wasn’t affected by those gains, Chinese stocks have lost about 40% of their value since 2007.
Too much debt and too little equity have been the source of many crises, according to the 2009 book “This Time Is Different” by economists Carmen Reinhart and Kenneth Rogoff, who examined data from 268 instances of financial turbulence in the past three centuries. Maybe this time is different.
To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, David Scheer, Dan Reichl
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