There are many small companies that are showing increasing signs of default, says S&P Global Market Intelligence Report.
Michelle Cheong S&P Global Market Intelligence head says that many small unrated firms prevail in the U.K., China and in the technology sector who will be first victims in the economic downturn.
There are hidden debtors in the economy who are flashing signs of trouble, says S&P Global. These comprise of small borrowers who are not assisted by the credit ratings from S&P Global Ratings.
Cheong says these unrated entities may be the first to default as they are the weaker link in the business world. They emit the first warning signs after which the rated entities fall. The weaker entities are smaller in size with a collective asset that is less than 10 percent of their peers with good ratings.
She says that the risks from these unrated issuers are found through a study of various indications like revenue growth and earnings estimates.
The analysis made by Cheong will be presented at the S&P Global Market Intelligence Annual Conference in Singapore. Defaults in Chinese firms are at unprecedented levels. The technology sector has been hit by the global trade tension, while the Brexit no-deal is hurting companies in the U.K.
These unrated entities are weakening across regions and sectors as their profit margins are seen to falling. One reason for this is over-investment in low profitability projects.
Low-interest rates are showing an increase in debt levels. Central banks across the globe are providing lower interest rates as stimulus measures to bring back growth into the economy. The trade war has brought a slowdown in the economies of many countries, which is the cause for the increasing defaults in the business segment.
The International Monetary Fund has stated that low-interest rates are resulting in a high level of risky debt in each country.
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