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 (NYSE:JPM) 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.