With Halloween near, investors need to keep an eye out for zombies. The pandemic has boosted the number of zombie companies—unprofitable, cash-poor firms that rely on financial markets to cover their costs—reports money manager Principal Global Investors. In the first quarter, Principal found 18% of companies in the Bloomberg Total Return Index couldn’t cover interest costs with the previous year’s pretax earnings, up from a little more than 10% a year ago.
The zombie label first emerged in Japan’s “Lost Decade” from the early 1990s to the early 2000s, when Japanese banks were pressured to extend loans to firms at low-interest rates to keep them in business. The outbreak has since spread. A Bank for International Settlements study earlier this month said that global publicly-traded zombie companies had risen from 4% in the late 1980s to 15% in 2017.
Alexandra Scaggs | Barron’s