If we have at least a good idea about the gross exposure to US junk if not who ultimately holds and funds it, the emerging markets infiltration is much more difficult to parse. There are only a handful of estimates that appear reliable enough to obtain a decent range estimate. The first comes from the BIS and was written in 2013. At the time, the paper caused some stir as it announced what many had expected mostly about China – it had participated fully in the “dollar” short through several conduits, including the financial sector which was borrowing (through loans and bonds) offshore to fund client activities onshore (in dollars).

Given the ongoing hysteria in Chinese markets vis-à-vis the “dollar”, I tend to believe their estimates were understated to considerable degree. Still, in terms of trying to find exposure among even the general “offshore” suppliers of “dollars” it is a helpful beginning.

As a consequence, a significant share of Chinese corporate debt securities issued in OFCs [offshore financial centers], 16%, is denominated in renminbi. That said, the US dollar remains by far the most important currency of issuance for Chinese firms, accounting for 77% of corporate issuance in OFCs. Again, this could reflect differences in the cost of funding. Dollar-denominated rates are below comparable renminbi rates and many players expect an appreciation of the Chinese currency.

What do Chinese corporations do with the dollars raised by issuing debt securities in OFCs? First, around one third of offshore issuance is by Chinese financial institutions that fund dollar lending in China. Second, nonfinancial issuance could reflect the internationalisation of Chinese firms. Chinese corporations have been purchasing assets around the globe recently, and at least part of these purchases appears to have been financed by borrowing abroad. This could explain the relatively high share of firms in the oil and gas sector in Chinese non-financial corporations’ offshore issuance. In addition, a good part of the firms in the “Other” sector appear to be manufacturers with overseas operations. [emphasis added]

The paper estimated that from July 2012 through June 2013 Chinese firms had issued a bit less than $50 billion in debt securities, gross, of which $20 billion was made up of those “other” firms including financials. About $4 billion of that was denominated in RMB, leaving the rest foreign and mostly US$.

The other large issuer offshore was, of course, Brazil. While Chinese firms had been self-funded onshore (whether or not through financial conduits for “dollars” onshore isn’t clear) prior, Brazilian firms never had the luxury. That means, straight away, the largest pools of offshore EM debt securities are going to be heavily Chinese and Brazilian, with really little else in concentration.