SEPTEMBER 2015 : MARKET ANALYTICS & TECHNICAL ANALYSIS - (Subscription Plan IV)
$1 trillion drop in emerging markets, a $4 trillion decline in development equity markets, and let's not forget, the bursting of the Chinese stock bubble, which from a peak market capitalization of $10 trillion in early June, or about the same as China's GDP, has lost some $4 trillion, since despite the Chinese government's increasingly more desperate and futile attempts to reflate the bubble.
The $9 trillion drop in combined market cap between the MSCI All World index and Chinese stocks, is the second highest ever, surpassed only by the $13 plunge in global market capitalization in late 2008.
ALL EYES ON CREDIT MARKETS
"The $9T decline in market values will impact implied leverage calculations and as such all eyes should now be on credit markets. Asian credit is already reacting to the price declines, with the likes of the Markit iTraxx Asia ex Japan CDS index moving significantly wider. However there has, as yet been no significant de-rating of credit in the likes of the US."
The drop in the market capitalization, and thus enterprise value (aka the EV used in the EV/EBITDA calculation) with debt sticky, will lead to far higher gross leverage ratios. To be sure, the $2 trillion in total debt (and $1 trillion in net debt) added to the balance sheets of non-financial firms since 2009 will not help. In fact, if the market suddenly realizes just how over levered US firms are, now that the Fed is set to begin hiking rates and pushing interest rates higher, something just may snap in the bond market which has been extremely generous to corporate CFOs in the past 7 years.
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