DEBT is a problem for some, but an opportunity for others. Here we highlight ways to profit from the debt crisis.

Which companies should gain from rising debt?

As banks and building societies tighten their lending criteria, an increasing number of people will have to look for alternative ways to borrow.

Pawnbrokers should be one of the main beneficiaries. Although they have a rather grubby reputation, business has been thriving and this has been reflected in strong returns.

The UK’s biggest pawnbroker, H&T Group, is listed on the Alternative Investment Market. Its share price has risen 18% over the past 12 months, more than double the 7% return from the FTSE 100.

Another pawnbroker that is doing well is fellow AIM-listed Albemarle & Bond, up 13% over the past year.

It is not only individuals who are finding it difficult to make their money stretch to the end of the month. Many small businesses are also suffering.

Keith Bowman at Hargreaves Lansdown Stockbrokers thinks investors can exploit this trend by buying into Begbies Traynor, a corporate recovery and rescue group.

He said: “The company deals with businesses that are experiencing financial difficulties and the number of affected firms is on the up, which should be good news for profits.”

Anthony Nutt at Jupiter, a fund manager, and Graham Neale at stockbroker Killik & Co recommend Icap as an indirect play on the debt crisis.

Listed on the FTSE 100, it is the world’s largest interdealer broker, arranging trades between big banks.

The market chaos has been a bonanza for the firm. Panic selling means trading volumes have soared.

What funds can I put my money in?

Some funds are looking to benefit from the turmoil by buying up high-quality corporate bonds at bargain prices.

Franklin Mutual Share, Thames River Distressed Focus fund and F&C’s Event Driven fund of hedge funds are among them. But the schemes are not for the fainthearted.

Justin Modray, at Bestinvest, an adviser, said: “This is a high risk area. The managers are effectively buying something that looks cheap as a result of turmoil, but there is no guarantee that things will turn round. The rewards can be handsome if it pays off, but if things get worse the losses could be huge.”

For most investors the best strategy is to focus on firms that are insulated from the debt crisis. That means funds that invest in large companies, as they have the financial strength to ride out any turbulence. Modray recommends Merrill Lynch UK Absolute Alpha.

Is it sensible to invest in a repossessed property?

You may be able to get a great deal if you buy a repossession or from someone needing to sell quickly. But you shouldn’t expect to make a quick profit and there are downsides to consider.

Many repossessions are in a poor state of repair, so you may have to do a lot of work to make them fit to rent.

Also the cost of borrowing is the highest it has been for a number of years. Although the risk of further rate rises has lessened because of the market volatility, another quarter-point rise to 6% cannot be ruled out. Cath Hearnden, at My Mortgage Direct, a broker, said: “You need to do the sums carefully before committing yourself to an investment you might not be able to afford.

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