TINYIKO NGWENYA: Read the rating agencies’ fine print —it’s good news
We must refocus on what the market is saying to avert a ratings downgrade
A review of the global sovereign ratings environment shows that Fitch has reported 14 sovereign downgrades so far this year, Standard & Poor’s 16 (exceeded only at the height of the 2011 eurozone crisis) and Moody’s 24 (compared with 10 at this stage last year). To put this in context, 2016 has been a challenging year for returns. In an environment of weak growth, valuations become even more important to investors, and expose countries with weak fundamentals. Highly indebted countries vulnerable to capital outflows in an increasingly volatile market fall victim to rating agency downgrades. Standard & Poor’s signalled in a report this month that emerging markets were likely to see more downgrades than upgrades for the next year or two, with nine of the top 20 developing economies having negative ratings outlooks, their heaviest ever negative bias on emerging market sovereigns since June 2009. The decline in oil and commodity prices since mid-2014 has led to a wave of sovereign downgr...
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