Emerging Market vs. G7 Public Debt Levels
Wednesday, May 26, 2010 at 10:40AM The current equity downturn has been just as hard on emerging market countries as it has on more developed nations. However, given that the downturn has been sparked by fears of seemingly unsustainable levels of public debt, emerging market stocks may be the baby getting thrown out with the bath water.
The table to the right shows the most recent levels of public debt as a percentage of GDP for each of the G-7 countries. As shown in the list, the average level of public debt to GDP is 94% and two countries have levels of debt that are in excess of 100% of GDP. Compared to the other six countries on the list, debt levels in the US seem downright thrifty!
While the average G-7 country has a debt to GDP ratio of 94%, this dwarfs the levels in the larger emerging market countries. The table below shows the debt to GDP ratio of the ten largest weighted countries in the MSCI Emerging Market Index (based on holdings of EEM ETF). As shown, the average level of debt in these countries is only 37.4%, which is nearly one third the level of debt in the G7. Additionally, of the ten countries highlighted, eight have lower debt levels than each of the seven G7 nations. If concerns over debt are the major issue behind the correction, emerging market countries should do well on any rebound.
Reader Comments (7)
Morning, Israel is not an EM anymore
Thanks SoCal. Yes I was aware of that. The weightings, however, were as of 4/30, when Israel was included in the EM index.
hsalediscountjewelry
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Public debt in USA only 52% ???
Wasn't there a recent news headline that debt is now $13 trillion ... how does that square with $14.6 trillion GDP ?
"Public debt in USA only 52% ??? Wasn't there a recent news headline that debt is now $13 trillion ... how does that square with $14.6 trillion GDP ?"
Bespoke is calling "public debt" that portion of the U.S. National Debt that is held outside of government accounts, by the public.
So, it doesn't include about half of all U.S. National Debt, including all Treasuries held by the Social Security Trust Fund, the federal pension fund, highway trust fund, FHA, etc. Or Treasuries that are held by the Federal Reserve.
That "public" portion is what would be at risk in a sovereign default or restructuring situation. Theoretically, the US Treasury can't default on amounts it owes the Social Security Trust Fund (power to tax, and to print via the Fed). That does not apply to most other nations as they don't issue sovereign debt in their own currencies, so can't simply print their way out.
I am looking fro the figures for the Gross Domestic Product of all G7 countries. for a classroom assignment. Please send the information to Sheila K. Crews at Crewskore@Yahoo.com thanks.
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