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S&P: Period of emerging sovereign upgrades exceeding downgrades nears end

A five year run of emerging market sovereign upgrades exceeding downgrades may be nearing an end, according to an article by Standard and Poor’s Ratings Services titled, “Emerging Market Sovereign Credit: Shifting Winds, Ebbing Current.”

The following is the text of the rating agency’s press release:

Although upgrades still outnumber downgrades and emerging market governments with positive outlooks are more than those with negative outlooks, macroeconomic data are mixed and many particular credit stories are nuanced. “We forecast that for 27 of the 42 sovereigns, growth will slow from 2007 to 2009,” said Standard & Poor’s credit analyst John B. Chambers, chairman of the Sovereign Ratings Committee. “The general government balances of 21 will deteriorate between 2007 and 2009. On the other hand, fiscal and external debt dynamics for most emerging market sovereigns will not worsen, according to our near-term forecasts.”

“Since we published our first semiannual emerging market report card in September 2006, we’ve cautioned that global conditions may become less benign, putting emerging market policymakers to the test,” Chambers continued. “Last September we wrote that we don’t believe conditions in the credit markets of industrial economies will revert to the status quo ante, but we believe the spillover effects to emerging markets will be contained. We continue to hold to that view.” As of April 14, Brazil, China, Malaysia, Peru, Poland, Russia, Slovak Republic, Trinidad and Tobago, and Uruguay all had positive outlooks, Chambers noted. On the other hand, Hungary, Pakistan, Serbia, Turkey, Ukraine, and Sri Lanka had negative outlooks and the Dominican Republic was on CreditWatch with negative implications. “These six governments are poorly placed, at their current rating levels, to trim their sails if the winds shift,” he said.

The article includes data on rating trends, rating distribution, and default experience. It also contains a comment on the factors that could change a rating or outlook on each of the 42 emerging market sovereigns and a bibliography of research published on emerging market sovereigns by Standard and Poor’s during the past six months. The article will appear in a special issue of Standard and Poor’s CreditWeek titled, “Beyond BRIC--2008.” (MTI-Econews)