FRANKFURT (Standard & Poor’s) Sept. 29, 2015–For the world’s emerging market nations, the period since the 2008 financial crisis has been, overall, conducive to economic growth, as a result of easy global credit conditions
and, for commodity exporters, positive price developments. Now, though, at least three major risks are combining to provide for a much darker outlook, said an article published today by Standard & Poor’s Ratings Services, titled ”
In Standard & Poor’s opinion, those key risks are: a reduction in global liquidity as the U.S. Federal Reserve eventually raises interest rates; the unwinding of excessive domestic credit that has built up in recent years in the banking system and in asset prices; and a marked slowdown of Chinese economic growth.
To gain a more nuanced understanding of how these risks affect each of 22 emerging market sovereigns, including those that have the highest absolute levels of outstanding commercial debt, Standard & Poor’s assessed all 22 based on their vulnerability to each of these three risks.
“Venezuela, Argentina, Turkey, Colombia, and Peru are the emerging market sovereigns that may be the most vulnerable currently to the combined effect of the three key risks of tightening global liquidity, financial deleveraging,
and a Chinese slowdown. Mexico, Poland, and the Philippines appear to be least at risk,” said Moritz Kraemer, Standard & Poor’s Sovereign Global Chief Risk
Officer. “Latin American sovereigns are, on average, more vulnerable than sovereigns in Asia in each of the three risk categories.”
Our sovereign ratings are tracking the risks: Countries that we have downgraded recently rank much weaker than those we have upgraded. The same is true for sovereigns with a negative rating outlook: They rank more vulnerable
than those with a positive outlook. “We believe that over the past two decades the ratings on emerging market sovereigns have become more resilient to stress, in part because they have made significant progress in developing
their domestic capital markets, increasing their external reserves, and making their monetary policy frameworks more flexible,” said Standard & Poor’s Managing Director Joydeep Mukherji. “Therefore, we do not expect a materialization of risks–comparable to the crises of the late 1990s–to lead to downgrades.”