Debt ratios outside the financial sector in Brazil, China and India are almost as high as they have ever been since 1996, just before the last emerging market financial crisis, according to the IMF.
The IMF says inflows into emerging market equities can enable companies, particularly lower-quality firms, to pile up debts.
“Although most measures of equity valuations are within historical ranges, ‘hot spots’ appear to be emerging in the equity markets in Colombia and Mexico and, to a lesser extent, in Hong Kong, India and Peru,” the IMF says, in an update to its Global Financial Stability Report.
In addition to Brazil, China and India, the IMF notes debt ratios are approaching 14-year highs in Chile and Korea.
However, the IMF also slammed developed nations for their lack of progress in reforming their financial sectors. (article continues below)
Regional banking is still weak in Europe and America, the fund says.
America has yet to reform its housing sector, particularly the government-sponsored enterprises which underpin it, the IMF points out.
The weaknesses of eurozone banks also remain entwined with the poor state of national finances.
The IMF says barely any progress has been made on deleveraging, meaning banks are still reluctant to embark on new loans.