China downgrade shows emerging market ratings stuck in reverse

https://www.reuters.com/article/us-emerging-ratings-idUSKBN18K2K4

A Moody’s downgrade on China on Wednesday and the likelihood that Brazil and South Africa face further rating cuts in the coming months is highlighting how emerging market credit quality remains stuck in reverse.

Since the start of 2014, Reuters analysis shows that the big three rating agencies – S&P Global, Moody’s and Fitch – have racked up more than 150 emerging market downgrades between them.

That averages out a roughly one a week and though there have been hopes that rising global growth and commodity prices will ease the pressure, that does not seem to be occurring yet.

S&P has more negative outlooks — effectively downgrade warnings — than it does positive ones by a score of 26 to 5, its heaviest downward bias ever according to its chief sovereign analyst.

After 20 EM downgrades last year, Fitch has already cut seven countries since the start of this one, including Turkey, South Africa and Saudi Arabia, and El Salvador twice.

Those moves have left it 13 negative outlooks and it thinks the worst may be past. But Moody’s, which delivered China’s first downgrade in 30 years on Wednesday, still has around 25 to resolve.

“Just looking very simplistically at debt to GDP, the fact is that most countries in emerging markets have seen an increase,” said Pictet portfolio manager Guido Chamorro.

“And even with some of the green shoots we have seen in EM, that trend is not expected to reverse for several years so it is not a surprise that rating agencies are still downgrading.”

Political machinations and below-par economic growth are also playing a role.

UBS research estimates growth in the 19 biggest emerging economies is running roughly 1.6 percent above developed peers. In 2009, this premium was 7.5 percent. Over the same period, the average EM rating has fallen around one notch, S&P data shows.

There are some shafts of light in the gloom.

Indonesia was raised to investment grade by S&P last week. Russia is knocking on the door again, India looks to be on the up and Moody’s says it could raise Argentina’s rating again before the end of the year.

Fitch has lifted double the amount of EM outlooks that it has lowered since January; Colombia, Croatia, Iraq and Sri Lanka versus El Salvador and Nigeria on the downside.

“Negative outlooks peaked in late 2016 in EM sovereigns and are now in decline,” Fitch’s head of Sovereigns James McCormack said in a recent speech.

http://www.afr.com/news/economy/moodys-downgrades-chinas-debt-for-first-time-in-26-years-20170524-gwcch6

China and one of the world’s most influential ratings agencies are at loggerheads after Moody’s delivered a scathing assessment of Beijing’s economic policy making and downgraded the country’s debt for the first time in 26 years.

In what will be viewed as a rebuke of China’s debt-funded growth model, Moody’s said on Wednesday economic reforms were moving too slowly and excess credit had imperilled the financial system.

It questioned Beijing’s ability to rein in credit, while at the same time maintaining high levels of economic growth.

China’s Finance Ministry was quick to reject the Moody’s decision, saying the methodology used by the agency was flawed.

“This view overestimates the difficulties facing the Chinese economy and … underestimates the government’s capability to deepen reform and expand overall demand,” the ministry said in a statement.

The surprise downgrade on Wednesday, by one notch to A1 from Aa3, leaves China’s foreign and local currency debt with a similar rating to that of Japan and Saudi Arabia.

———-

you most likely didnt hear about this as you were engulfed in hand swats and ariana grande stories..

“China and one of the world’s most influential ratings agencies are at loggerheads after Moody’s delivered a scathing assessment of Beijing’s economic policy making and downgraded the country’s debt for the first time in 26 years.”

26 years..this is THE news of the week..

“After 20 EM downgrades last year, Fitch has already cut seven countries since the start of this one, including Turkey, South Africa and Saudi Arabia, and El Salvador twice.”

EM’s on the slide?

401

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~ by seeker401 on May 26, 2017.

5 Responses to “China downgrade shows emerging market ratings stuck in reverse”

  1. Reblogged this on World Peace Forum.

  2. http://www.scmp.com/magazines/post-magazine/long-reads/article/2094646/how-chinas-ancient-carrot-and-stick-concept

  3. One thing smart about the chinese – they spent as much as they can (to buy up resources & companies overseas) before the fiat system collapses – afterall they are holding so much worthless fiat.. they needed to get rid of all the fiat with hard assets

  4. This is amazing. China is a economic monster, but could not avoid a downgrade. China is sitting on a lot of gold, some newly discovered, and also is a leader in rare metals. Their asset holdings oversees is tremendous, as JoelH pointed out. I do not know the Moody criteria, but even aside, their value, with all of that (including empty cities with more building plans to keep people employed), they have been downgraded. It is amazing.

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