Corporate debt – the next global risk

Global leverage has not decreased. It has risen. But while everyone is still focused on the major culprit — sovereign debt — the locus of future crises will be corporate debt in both developed and emerging markets. Corporates have done little deleveraging in the post-crash years. Indeed, they are more leveraged at this point in the business cycle than in any other. Relative to profitability, corporate debt looks stretched, in emerging markets in particular. We would go short corporate debt in the major developed markets and in selected emerging ones, particularly the BRICs.

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