JPMorgan Cuts Forecast for Emerging Market Corporate Defaults

FILE PHOTO: A man walks into the JP Morgan headquarters at Canary Wharf in London May 11, 2012. REUTERS/Dylan Martinez/File Photo
FILE PHOTO: A man walks into the JP Morgan headquarters at Canary Wharf in London May 11, 2012. REUTERS/Dylan Martinez/File Photo
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JPMorgan Cuts Forecast for Emerging Market Corporate Defaults

FILE PHOTO: A man walks into the JP Morgan headquarters at Canary Wharf in London May 11, 2012. REUTERS/Dylan Martinez/File Photo
FILE PHOTO: A man walks into the JP Morgan headquarters at Canary Wharf in London May 11, 2012. REUTERS/Dylan Martinez/File Photo

Investment bank JPMorgan cut on Monday its forecast of the number of emerging market companies expected to default on their debt, following the biggest improvement in distressed-level market pricing since 2016.
With some defaults out the way and others not having materialized, 2024 is also expected to be the first year since the start of the COVID-19 pandemic in 2020 that EM corporate default levels fall below the historical average.
The bank lowered its high yield or 'junk'-rated EM corporate default forecast to 3.6% from 4.0% globally and to 2.1% from 2.9% for firms in the closely-followed CEMBI Broad Diversified index, which is run by a separate JPMorgan unit.
"We see lower risks for the rest of the year as some of the default candidates rolled off and others already materialized, while new additions were limited," the bank's analysts said in a research note.
Problems are expected to stay concentrated in China's property sector and among "repeat defaulters" in the likes of Latin America, although the bank also pointed out that there had not been a Ukrainian default yet this year, despite its war.
Regionally, Asia's default forecast was left at 4.5% overall and 2.5% for the CEMBI group. Latin America's was cut by 1% to 4.6% and to 2.8% for the CEMBI.
EM Europe was lowered to 2.0% from 3.0% and to 2.3% for CEMBI BD HY, while Middle East & Africa was nudged up to 0.6% from 0.5%, with the CEMBI at 0.5%.
According to Reuters, the note highlighted how much more optimistic international investors now seemed to be.
The share of EM firms viewed as being in a "distressed" state and at serious risk of default had plunged 7% this year - distress being defined as having a 1,000 basis point risk premium or 'spread' on their bonds.
That is the largest improvement in any calendar year since 2016, JPMorgan's analysts added.
"Assuming 50% of bonds trading at distressed levels may default 12 months forward suggests a 4.6% default rate, but we believe this outcome is unlikely," they said.
This was because more than half the distressed volume is from China, where bond prices are depressed in excess of the actual default risk, they added.



Gulf Stock Markets Slip Amid Escalating Iran-Israel Conflict and Fed Policy Uncertainty

Traders monitor stock information displayed on screens at the Qatar Stock Exchange. (Reuters)
Traders monitor stock information displayed on screens at the Qatar Stock Exchange. (Reuters)
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Gulf Stock Markets Slip Amid Escalating Iran-Israel Conflict and Fed Policy Uncertainty

Traders monitor stock information displayed on screens at the Qatar Stock Exchange. (Reuters)
Traders monitor stock information displayed on screens at the Qatar Stock Exchange. (Reuters)

Major stock markets across the Gulf declined on Tuesday, as heightened geopolitical tensions between Iran and Israel weighed on investor sentiment and fueled concerns over regional stability. Investors also remained on edge ahead of a key interest rate decision by the US Federal Reserve.

Reports from Iranian state media described a series of explosions and intense anti-aircraft fire lighting up the skies over Tehran. Simultaneously, air raid sirens sounded in Tel Aviv following a barrage of Iranian missile launches.

Amid the growing tensions, US President Donald Trump, speaking after departing early from the G7 summit in Canada, urged civilians to evacuate the Iranian capital.

At the same time, markets are closely watching developments in Washington, where the Federal Reserve is set to begin a two-day policy meeting. The central bank is widely expected to keep interest rates unchanged, but investors are eagerly awaiting signals from Chair Jerome Powell on the future path of monetary policy, particularly any indications of upcoming rate cuts to support a slowing global economy.

Against this backdrop, Gulf equity markets ended the day mixed. Saudi Arabia’s benchmark Tadawul All Share Index slipped 0.41%, while the Abu Dhabi Securities Exchange lost 0.51%. Dubai’s main index was down 0.64%.

Other markets followed suit. Qatar’s index dropped 0.51%, Muscat’s bourse fell 0.33%, and Egypt’s EGX 30 posted the largest regional decline, falling 1.02% amid heightened investor anxiety.

However, a few markets bucked the trend. Kuwait’s exchange rose 0.65%, while Bahrain’s index gained 0.30%, supported by selective buying and relative insulation from the geopolitical fallout.