I decided to go back over the charts I have provided previously on the Asian debt and capital structure situations, here looking at updating the charts with Singapore and Hong Kong in mind. I’m pretty happy that I didn’t include these two in the first pass-around, but at the moment they carry some interesting features so picking and choosing which charts to include has its benefits!
Let’s get to it with this chart of aggregate financing across Asia, now updated with Singapore and Hong Kong:
Here, we pretty immediately see that both Hong Kong and Singapore leapfrog Japan or Taiwan in terms of total aggregate financing, with Hong Kong achieving that (with debt alone almost eclipsing aggregate financing in Singapore), and Singapore easily achieving that when also considering equity market capitalization.
Perhaps most astonishing is the massive equity market capitalization in these economies, at nearly 400% (!) of GDP for Hong Kong and over 200% for Singapore. Sure, they are financial centres, but their overall economic sizes are equivalent to Malaysia and the Philippines. Now, how does this debt break down in terms of the nominal interest cost of the debt? (I have ignored mortgage payments here, modeling those is even more uncertain than any other place, as the growth to be considered is regional rather than domestic.)
Going back on the total debt breakdowns courtesy of the Nikkei Asian Review, and applying the latest loan cost data as i have previously, the interest cost in percent of GDP for different sectors emerge, here shown for Hong Kong and Singapore with the rest of East Asia for comparison:
It becomes immediately visible that the main source of these costs, both in Singapore and Hong Kong, is corporate debt. In Hong Kong it’s the bond market (thus much more uncertain) while in Singapore it’s bank lending to corporates. Household debt interest here are also very high, in Singapore’s case even taking the dubious honour of first place from Korea! then, what happens if we adjust this for inflation?
Here, the discrepancy with massive interest in Hong Kong but almost none in Singapore becomes very highly visible. Given, these numbers might be somewhat extreme, but the average and trends are not too far off (inflation at 4.5% in Hong Kong rather than 6.6%, and around 1% in Singapore rather than 0.6%) so it still gives a rather good picture of the relative ability of the economies to inflate away the debt. Here, all debt in Singapore save for corporate bonds becomes the most expensive in East Asia, and corporate bonds tick in at number 2, distantly behind Korea but far ahead of China.
Hong Kong on the other hand immediately looks like a very sustainable debt picture with inflation at these levels, providing near-Japanese levels of debt relief through inflation (especially since Japan’s inflation is largely “doped” by the tax hikes). Likely, Hong Kong is the most difficult economy to be a lender to locals in given the inflation picture, which might be why it has such extremely high overall debt/GDP levels. Additionally, the ability to borrow against assets whose value are largely driven by non-local economic factors (stock market and property market both piggy-backing of China rather than local earnings ability) allows for elevated valuations and more assets to borrow against.
Finally, how does the trade and foreign exchange reserves numbers look? This might give an indication of trade reliance and ability to sustain these levels of valuations.
Again, these are total trade values used for the trade data, but it gives an indication of the sensitivity of the economy to external trade that is hard to model in either the trade balance, import/export individually, or the current account (which also considers net financial gains/losses in the country).
Here, even though Singapore has a massive currency reserve, the 217% of GDP total monthly trade means that only half a month of trade matches the overall currency reserves. Singapore thus is very sensitive to changes in its terms of trade, and this sensitivity most likely will force actions by the Monetary Authority of Singapore. The overall trend is followed by Hong Hong, having larger reserves to GDP but trading less (although still ridiculously much when compared to any whole country) than Singapore.
After that there is a pretty tight race around 4 months of trade-value-to-reserves for all of Hong Kong, Malaysia, Korea, Thailand and India, despite their currency reserve levels differing from near-120% to less than 20% of GDP! China and Japan look somewhat similar, with unremarkable reserves as percent of GDP (but keep in mind that these are the globally largest holders in nominal terms) but that representing massive amounts of its total trade, at 10 months to one year respectively! For those of you worried that Japan’s trade is the main reason for the BOJ stimulus can rest eay now, I hope, especially if you look into the balance of trade or current account of Japan!
Taiwan is the only country that has both large reserves and those reserves representing a significant time of trade, with roughly 85% reserves to GDP and 8.5 years of trade. Thailand, Malaysia and to a much lesser extent Korea follows suit in trading roughly 10% of GDP, allowing the relative heights of these bars to remain within the same neighbourhood.
Edit: I was careless in my data reading the time I did this, most trade data is for monthly trade, throwing the analysis out of whack.