Corporate credit unwind has begun

We believe are in early stages of a credit event where increasing Corporate defaults translate into higher unemployment, weaker consumption and dampened business sentiment. For the past 15+ years, a number of emerging market and commodity-driven countries have been rewarded by the secular upturn in resource prices. Foreign capital soon followed on the back of this boom and incomes as well as purchasing power increased for the local workforce. Unfortunately, circumstances have now reversed as China transitions away from real estate and infrastructure projects, scaling back its appetite for raw materials. Given China represents a significant portion of global commodities demand, its disappearance as the marginal buyer has seen oil and iron ore more than half over the past 18 months ago. As growth prospects diminish, resource-exporting names are increasingly punished. We’ve already seen a wholesale discounting of EM and EM-dependent regions ensue amid collapsing revenues and mounting foreign denominated debt. We fully expect this unwind to continue.