Emerging Nations Trimming $5 Trillion Debt Stokes Currency Risk, by Andrea Wong

This is how debt contractions start. From Andrea Wong at bloomberg.com:

First net repayment of dollar loans since 2008 in 3rd quarter
Dollar demand from companies puts pressure on local currencies

Borrowers in emerging markets have started to address a $5 trillion mountain of dollar-denominated bonds and loans, reducing their obligations for the first time in seven years in a move that threatens to cut short a budding rally in currencies from Brazil to Malaysia.

Companies in developing nations paid back $38 billion of dollar debt last quarter, $3 billion more than they borrowed in the period and marking the first reduction in net issuance since 2008, according to data compiled by Bloomberg. Demand for greenbacks among borrowers needing the currency to repay debt is contributing to the largest capital outflows in almost three decades.

The borrowing binge, which took off in the wake of the global financial crisis as interest rates tumbled, may now be reversing as economic growth slows, commodity prices fall and lenders demand higher yields. While developing-nation currencies are rebounding from their record lows, analysts surveyed by Bloomberg expect the depreciation trend to resume as dollar debt repayments accelerate.

“This is a massive event,” said Stephen Jen, the co-founder of London-based hedge fund SLJ Macro Partners LLP and a former economist at the International Monetary Fund whose bearish call on emerging markets since 2012 has proven prescient. “They want to pay down their dollar loans. We are early in the game, there’s pretty intense pressure on emerging markets.”

To continue reading: Emerging Nations Trimming $5 Trillion Debt

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