Where the bush fires start

When looking for potential problems in a company, the first place to look is the balance sheet. Amit Lodha, Portfolio Manager at the Fidelity Global Equities Fund, says that when looking for problems in the equity markets, investors should watch the markets’ ‘balance sheet’ – fixed income markets. 

Key points:

• The Fed is raising rates and will continue doing so until there are problems in the US
• The new Fed governor is trying to add to his ‘toolkit’ for the next downturn
• Emerging markets have begun to “flash red” with weak currencies and USD balance sheets
• US corporates are highly levered; the US Telecoms sector has more debt than Russia, India, or Brazil
• The market for BBB securities has exploded in recent years. If we see significant downgrades, the high yield market is not big enough to support a large influx.
• When equity spreads widen, that’s when “the bushfire starts for equity markets.”

“AT&T has $250 billion of debt outstanding on its balance sheet. That’s more than the debt of New Zealand.”

Further insights

If you would like to hear more from Amit and the global equity team, please visit the Fidelity International website