Wrong side of the bed this morning, Fitch? Or just the dawning realisation that the theory of decoupling isn’t all its cracked up to be?
The rating agency on Monday downgraded a slew of emerging market economies including Bulgaria, Hungary, Kazakhstan and Romania (which it cut to junk).
Fitch also revised to negative from stable the long-term foreign currency ratings of South Korea, Mexico, Russia and South Africa, and to cut to stable from positive Chile and Malaysia.
As a result of its rating actions on the sovereigns, it cut to negative the outlook for 12 Russian banks, cut the long-term issuer default ratings of two Hungarian banks, downgraded five Bulgarian banks and lowered the long-term foreign currency ratings of three Kazakh energy companies and a railway group.
Some lowlights from the accompanying statements, emphasis FT Alphaville’s:
Fitch’s sovereign rating review of the major investment-grade EMEs focused on the vulnerability and capacity to absorb the shock of recession in the world’s largest economies, which Fitch now believes will be as long and as deep as the recessions of the early 1980s and 1990s, lower commodity prices and reduced capital and financial market flows. As and when international financial markets stabilise, many emerging market economies (EMEs) will still have to adjust to lower real incomes and investment as well as increase domestic savings.
David Riley, Head of Fitch’s Global Sovereign Ratings Group, said, “The profound shift in the global economic and financial outlook pose significant real economy and policy challenges for emerging markets. Policymakers in emerging economies have even less scope for policy errors than their counterparts in so-called ‘advanced’ countries, but they are better placed to navigate these challenges than ever before. Nonetheless, the risks of economic and financial stress that could undermine sovereign creditworthiness have risen and that is reflected in the prospective rating actions taken today.”
…while sovereigns have been reducing their recourse to foreign-currency and external borrowing, record international bank and investor inflows into many EMEs have fuelled large current account deficits, notably in central and eastern Europe, and left banks and corporations domiciled in EMEs with substantial foreign-currency mismatches and refinancing needs.
Ouch.
