The emergence of China as the biggest debt market, gradual disintermediation of banks, faster debt growth in sectors benefitting from the rising global middle class, and an aging world population have resulted in major credit shifts in nonfinancial corporate debt issuance since the 2008 recession. We expect these shifts to continue through the next five years, as corporate issuers will likely seek up to $60 trillion in new debt and refinancing through 2018, an increase from an estimated $53 trillion last year. (Watch the related CreditMatters TV segment titled “Asia-Pacific’s Debt Will Outpace The U.S. And Eurozone As Global Funding Demand Rises,” dated June 16, 2014.)
Corporate credit globally has approached an inflection point as the center of gravity shifts to the Asia-Pacific region. Corporate debt in the region, particularly from China, will exceed that of North America and Europe combined by 2016. We believe this will lead to an overall increase in risk, since the credit quality of corporate borrowers in Asia-Pacific is generally lower than in North America and Europe. Consequently, without improved risk assessment among investors and a heightened awareness by regulators of contagion risk, some future financial stress could stem from Asia.