Last month the China Banking Regulatory Commission warned of the risks posed by rising real estate, local government and unconventional debt. Non-performing loans in these areas in Q1 2015 were roughly 55 per cent higher than at this time last year and the bad loan ratio rose to 1.39 per cent.
They are not alone. Andrew Wilson of Goldman Sachs Asset Management International said: "There is too much debt and this represents a risk to economies. With life expectancy increasing rapidly, we no longer have the young, working populations required to sustain a debt-driven economic model. As demographics change, new ways of thinking at policy level are required." And Angel Gurria, secretary general of the OECD said that at current trends Japan's government debt would hit 400 per cent of GDP in 2040 from today's 200 per cent (currently matched only by Italy and Zimbabwe).
McKinsey points out that total debt across the 47 countries they studied is up from $142 trillion to $199 trillion in the seven years since Q4 2007, broken down into $40 for households, $45 financials, $56 corporates, and $58 governments (all in trillions). This is faster than GDP so that the ratio of debt to GDP is now 286 per cent (from 269 in 2007 and 246 in the year 2000).
Now, if lenders are happy to lend, and borrowers are greedy or stupid, there is little point telling them to stop. But what we investors must try and do is steer clear of areas that might blow up. What to watch out for?
First, the heavily indebted with a lot of swagger peddling a good story; bravado all the greater the closer one is to bankruptcy. Brazil's flamboyant business tycoon Eike Batista springs to mind, from the seventh richest man in 2012, and a net worth estimated at $30bn, two years later he had managed the incredible shrinking trick so that he owed a net $1bn. From hero to zero and some more.
Another one to avoid: anything faddish or suddenly very fashionable. Not just clothing, though Crocs sandals spring to mind. Also IT and telephony; who wants a Nokia today? Food trends and restaurants are especially prone to this, one day the bookings clerk the little dictator, the next with nothing to do. Catering a notoriously difficult area in which to make consistent profits.
Be wary of those who have suddenly borrowed a lot. University graduates are new to this category now that many governments are no longer funding tertiary education. Some of these kids have borrowed big time, funding expensive tuition fees and often lavish subsistence fees too. Starting adult life in the US with on average $35,000 debt as global youth unemployment (16 to 29 year olds) stands at 35 million. Oh dear.
Sudden indebtedness has also been a feature of recent emerging market growth. A new army of borrowers created, and while wider access to financial services is usually seen as a good thing, little has been done to educate them as to the perils involved. Car loans a classic example, 0 per cent for the first five years, or repayments up to 97 months softening the blow.
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Nicole Elliott is a long standing Member of the Society of Technical Analysts and has just taken over the IC's trading coverage. She is regularly interviewed and quoted by the financial media, is a conference speaker, and author of several books on charting.
