More emerging market entities continue to be listed with a positive bias than a negative one, according to a report released by Standard & Poor’s. This is in contrast to the trend in developed economies.
As of June 30, 16% of rated parent issuers in the emerging markets were listed either with a positive outlook or CreditWatch with positive implications compared with 14% at the end of March and 13% a year ago. Meanwhile, the negative bias declined to 14% from 20% a year ago.
“The positive bias in emerging markets is being sustained by high commodity prices, which are stoking growth in many markets,” explains Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group. “Whether these conditions will result in actual upgrades–versus merely returning to stable at existing rating levels – will depend on the extent to which economic demand is strengthened and extended to non-commodity sectors.”
Emerging market credit quality has been continuously improving for several quarters, with upgrades outpacing downgrades for the fourth consecutive quarter. During the second quarter of 2004, fewer upgrades were recorded than in the previous quarter, but because the number of downgrades had shrunk to half, the downgrade ratio declined. The downgrade ratio decreased to 11% (based on 16 upgrades and two downgrades) from 16% at the end of March and 54% a year ago. The downgrade ratio is the lowest recorded since the fourth quarter of 1997, which saw a spurt of upgrades in Latin America, primarily in Argentina and Brazil.
The report, titled “Emerging Market Credit Quality Still Upbeat, But Risks Loom ‘, is available on RatingsDirect, Standard & Poor’s web-based credit research and analysis system.