By Marc Jones
LONDON (Reuters) -JPMorgan ramped up its 2023 global emerging market corporate high yield (HY) default rate forecast to 9.7% from 6% on Tuesday following the latest wave of problems in China’s property sector.
The U.S. investment bank said Chinese property firms were expected to account for nearly 40% of 2023’s corporate default volumes, followed by 35% from Russia and 12% from Brazil.
“Specifically, we raise Asia HY default rate forecast to 10.0% from 4.1% on the back of Country Garden and ripple effects to other parts of the sector,” the bank’s analysts said in a report, referring to China’s largest private developer which is now struggling to make its debt payments.
If Country Garden suffers a full-scale default, it would add $9.9 billion to the year-to-date emerging market (EM) HY corporate default tally, JPMorgan estimates.
It would also take the China property default tally to $17 billion and add to the $100 billion of defaults already seen as the sector has buckled over the past two and a half years.
Latin America’s default rate forecast was also increased to 7.1% from 6.6% on signs that Brazil’s Odebrecht Engenharia e Construcao (OEC) appeared to be starting another restructuring round that could impact up to $1.9 billion of its bonds.
EM Europe’s forecast was raised to 23.4% from 15.7%. JPMorgan’s analysts said that reflected the inclusion of Russian corporate bond defaults, most of which have been “technical” in nature as sanctions have prevented firms getting bond payments to international investors.
(Reporting by Marc JonesEditing by Jorgelina do Rosario and Mark Potter)