Markets
Visualizing the State of Global Debt, by Country
View the expanded version of this infographic to see all countries.
View the expanded version of this infographic to see all countries.
Visualizing the State of Global Debt, by Country
Since COVID-19 started its spread around the world in 2020, the global economy has been put to the test with supply chain disruptions, price volatility for commodities, challenges in the job market, and declining income from tourism. The World Bank has estimated that almost 97 million people have been pushed into extreme poverty as a result of the pandemic.
In order to help with this difficult situation, global governments have had to increase their expenditures to deal with higher healthcare costs, unemployment, food insecurity, and to help businesses to survive. Countries have taken on new debt to provide financial support for these measures, which has resulted in the highest global debt levels in half a century.
To analyze the extent of global debt, we’ve compiled debt-to-GDP data by country from the most recent World Economic Outlook report by the IMF.
Global Debt by Country: The Top 10 Most Indebted Nations
The debt-to-GDP ratio is a simple metric that compares a country’s public debt to its economic output. By comparing how much a country owes and how much it produces in a year, economists can measure a country’s theoretical ability to pay off its debt.
Let’s take a look at the top 10 countries in terms of debt-to-GDP:
Rank | Country | Debt-to-GDP (2021) |
---|---|---|
#1 | Japan 🇯🇵 | 257% |
#2 | Sudan 🇸🇩 | 210% |
#3 | Greece 🇬🇷 | 207% |
#4 | Eritrea 🇪🇷 | 175% |
#5 | Cape Verde 🇨🇻 | 161% |
#6 | Italy 🇮🇹 | 155% |
#7 | Suriname 🇸🇷 | 141% |
#8 | Barbados 🇧🇧 | 138% |
#9 | Singapore 🇸🇬 | 138% |
#10 | Maldives 🇲🇻 | 137% |
Source: World Economic Outlook Report (October 2021 Edition)
Japan, Sudan, and Greece top the list with debt-to-GDP ratios well above 200%, followed by Eritrea (175%), Cape Verde (160%), and Italy (154%).
Japan’s debt level won’t come as a surprise to most. In 2010, it became the first country to reach a debt-to-GDP ratio 200%, and it now sits at 257%. In order to finance new debt, the Japanese government issues bonds which get bought up primarily by the Bank of Japan.
By the end of 2020, the Bank of Japan owned 45% of government debt outstanding.
What is the main risk of a high debt-to-GDP ratio?
A rapid increase in government debt is a major cause for concern. Generally, the higher a country’s debt-to-GDP ratio is, the higher chance that country could default on its debt, therefore creating a financial panic in the markets.
The World Bank published a study showing that countries that maintained a debt-to-GDP ratio of over 77% for prolonged periods of time experienced economic slowdowns.
COVID-19 has worsened a debt crisis that has been brewing since the 2008 global recession. A report from the International Monetary Fund (IMF) shows that at least 100 countries will have to reduce expenditures on health, education, and social protection. Also, 30 countries in the developing world have high levels of debt distress, meaning they’re experiencing great difficulties in servicing their debt.
This crisis is hitting poor and middle-income countries harder than rich countries. Wealthier countries are borrowing to launch fiscal stimulus packages while low and middle income countries cannot afford such measures, potentially resulting in wider global inequality.
The IMF Warns of Interest Rates
Global debt reached $226 trillion by the end of 2020, seeing the biggest one-year increase since World War II.
Borrowing by governments accounted for slightly over half of the $28 trillion increase, bringing global public debt ratio to a record of 99% of GDP. As interest rates rise, IMF officials warn that higher interest rates will diminish the impact of fiscal spending, and cause debt sustainability concerns to intensify. “The risks will be magnified if global interest rates rise faster than expected and growth falters,” the officials wrote.
“A significant tightening of financial conditions would heighten the pressure on the most highly indebted governments, households, and firms. If the public and private sectors are forced to deleverage simultaneously, growth prospects will suffer.”
Editor’s note: All data used in our visualization was extracted from the World Economic Outlook Report (October 2021 Edition) and The World Bank. We will update this data when the new report is available in April 2022.
Markets
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Over the last 35 years, small- and mid-cap stocks have outperformed large caps, making them an attractive choice for investors.
According to data from Yahoo Finance, from February 1989 to February 2024, large-cap stocks returned +1,664% versus +2,062% for small caps and +3,176% for mid caps.
This graphic, sponsored by New York Life Investments, explores their return potential along with the risks to consider.
Higher Historical Returns
If you made a $100 investment in baskets of small-, mid-, and large-cap stocks in February 1989, what would each grouping be worth today?
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Starting value (February 1989) | $100 | $100 | $100 |
Ending value (February 2024) | $2,162 | $3,276 | $1,764 |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Mid caps delivered the strongest performance since 1989, generating 86% more than large caps.
This superior historical track record is likely the result of the unique position mid-cap companies find themselves in. Mid-cap firms have generally successfully navigated early stage growth and are typically well-funded relative to small caps. And yet they are more dynamic and nimble than large-cap companies, allowing them to respond quicker to the market cycle.
Small caps also outperformed over this timeframe. They earned 23% more than large caps.
Higher Volatility
However, higher historical returns of small- and mid-cap stocks came with increased risk. They both endured greater volatility than large caps.
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Total Volatility | 18.9% | 17.4% | 14.8% |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Small-cap companies are typically earlier in their life cycle and tend to have thinner financial cushions to withstand periods of loss relative to large caps. As a result, they are usually the most volatile group followed by mid caps. Large-cap companies, as more mature and established players, exhibit the most stability in their stock prices.
Investing in small caps and mid caps requires a higher risk tolerance to withstand their price swings. For investors with longer time horizons who are capable of enduring higher risk, current market pricing strengthens the case for stocks of smaller companies.
Attractive Valuations
Large-cap stocks have historically high valuations, with their forward price-to-earnings ratio (P/E ratio) trading above their 10-year average, according to analysis conducted by FactSet.
Conversely, the forward P/E ratios of small- and mid-cap stocks seem to be presenting a compelling entry point.
Small Caps/Large Caps | Mid Caps/Large Caps | |
---|---|---|
Relative Forward P/E Ratios | 0.71 | 0.75 |
Discount | 29% | 25% |
Source: Yardeni Research (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Looking at both groups’ relative forward P/E ratios (small-cap P/E ratio divided by large-cap P/E ratio, and mid-cap P/E ratio divided by large-cap P/E ratio), small and mid caps are trading at their steepest discounts versus large caps since the early 2000s.
Discovering Small- and Mid-Cap Stocks
Growth-oriented investors looking to add equity exposure could consider incorporating small and mid caps into their portfolios.
With superior historical returns and relatively attractive valuations, small- and mid-cap stocks present a compelling opportunity for investors capable of tolerating greater volatility.
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