CHART: The Incredible Shift In Corporate Leverage In The US And China

Richard Bernstein has long been bullish on U.S. equities.  One of the main reasons he favours the U.S. over other international markets is the quality of corporate profits.

In his latest monthly note to clients, Bernstein warns that the negative earnings surprises of Q4 earnings season are worrisome.  Nevertheless, he’s sticking to the U.S.

“The U.S. corporate sector remains the strongest corporate sector in the world,” he writes.

He specifically points to the shift in leverage in the corporate sector.

Corporate profits in the emerging markets continue to show distressing signs. An example that we have used before is Chinese companies have actually been increasing their leverage despite an economy that is growing quite rapidly, whereas US corporations have been reducing leverage despite slow US growth (see charts 2 & 3). US corporations have been able to produce superior earnings growth without increasing leverage.

chart

Photo: Richard Bernstein Advisors

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