S&P Global Ratings Publishes Emerging-Market Sovereign Rating Trends For Midyear 2018

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U.S. Dollar and China Yuan notes are seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration

Key Takeaways

· Among the 20 major emerging-market sovereigns, three carry positive outlooks and one has a negative outlook.

· Our single negative outlook is on the sovereign ratings on Qatar. We have positive outlooks on Hungary, Philippines, and Poland.

· The average unweighted sovereign rating for our EM group has remained stable since the start of the year as the downgrades of Brazil and Turkey were counterbalanced by the upgrades of Egypt and Russia.

Despite the increasingly blustery external environment, which saw sizable non-resident portfolio outflows from emerging markets throughout the second quarter of 2018, ratings on sovereigns in the region have remained relatively resilient year to date, S&P Global Ratings said in the report published today, “Emerging Markets Sovereign Rating Trends Midyear 2018.”

Indeed, following last February’s upgrade of Russia to ‘BBB-‘ (long-term foreign currency rating), the proportion of EM sovereigns that we rate at or above ‘BBB-‘ has increased to close to two-thirds (see “Emerging Markets Sovereign Rating Trends 2018,” published on Jan. 10, 2018), with nearly half of these located in Asia.

At the same time, over the last six months there have been a pair of high profile EM downgrades: for Brazil on Jan. 11 and Turkey on May 1. In both cases, we set the post-downgrade outlooks to stable, which, alongside the solid macroeconomic story in Eastern Europe, largely explains why the balance between negative and positive outlooks on the top 20 EM sovereign ratings is now at its most positive level since the start of 2011.

There are at present three sovereigns that carry positive outlooks: Hungary, Philippines, and Poland. Our only negative outlook in the group is on Qatar’s ‘AA-‘ long-term foreign currency rating, reflecting the risks to growth and financial sector external financing due to the June 2017 imposition against Qatar of a trade embargo by Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt.

Over a longer horizon, our ratings on EM sovereigns have been considerably more stable than market-derived ratings. S&P Global Ratings has not rated Turkey investment grade since 1994. However, market-derived ratings for Turkey indicate a four-notch cumulative downgrade by the market from ‘BBB-‘ in February 2015 to ‘B+’ today. Similarly, since July 2015, Russia’s implied market ratings have fluctuated across four notches, whereas S&P Global Ratings’ sovereign long-term rating varied between ‘BB+’ and ‘BBB-‘ across the same period.

Twice a year, we publish a eurozone sovereign ratings outlook, which includes rating and outlook trends as well as sovereign-specific summaries. Other regional reports cover Asia-Pacific, the eurozone, Central and Eastern Europe and CIS, Latin America and the Caribbean, the Middle East and North Africa, and sub-Saharan Africa. Also see our global overview, “Global Sovereign Rating Trends Midyear 2018,” published on July 16, 2018. The next sovereign rating outlooks will be published in January 2019. You will find the current set of sovereign trend publications and videos on spratings.com/sovereign outlook

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