EMD to suffer more defaults than in 2008 financial crisis, Moody's warns - reports
Up to 13.7% default rate
Up to 13.7% of "speculative grade" bonds across emerging markets are at risk of defaulting over the next year – a higher level than that seen during the throes of the 2008 Global Financial Crisis, according to Moody's latest forecast.
According to the credit rating agency - as reported by the Financial Times - the default rate for higher-risk emerging market debt last year stood at just 0.8% with seven companies defaulting, including three Chinese firms and Jamaican telecoms company Digicel.
However, due to the coronavirus pandemic and its impact on the global economy, Moody's predicts this will jump to between 8.3% and 13.7% between now and the end of March 2021.
At the peak of the 2008 Global Financial Crisis, default rates across emerging market credit stood at 13.6%.
The long-term impacts of coronavirus on emerging markets
Joyce Jiang, an analyst at Moody's, said: "The global spread of the coronavirus has led to business closures and restrictions on social interactions in many countries. The collapse in demand has weakened EM corporate profitability and liquidity."
Kumar Kanthan, credit strategist at Moody's, told the FT that while the pandemic has not yet become apparent in default rates, the retail and oil & gas sectors are most likely to suffer most, given they were already struggling with defaults before the coronavirus crisis.
"The [forecasting] model's history has been very accurate, particularly if you get the macro environment correct," he added.
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