SA’s inevitable downgrade: Half of EM bonds have fallen into “junk” status

LONDON, July 13 (Reuters) – Half of the world’s top emerging market sovereigns are now rated below investment grade following this year’s latest wave of downgrades, Standard and Poor’s said on Wednesday.

Standard & Poor's HQ.
Standard & Poor’s HQ.

The credit agency said it was the first time since 2009 there had been a 50/50 split between ‘junk’ and ‘investment’ grades, reflecting cuts over the last 18 months for the likes of Brazil, Russia, South Africa and Saudi Arabia.

“The share of the top 20 emerging markets (EMs) sovereigns with investment-grade ratings (‘BBB-‘ or above) has declined to 50 percent, the lowest point since 2009, after peaking at 60 percent between May 2013 and December 2014.” S&P said in a report.

Further downgrades could be on the cards.

Read also: Matthew Lester: Brexit collateral damage – the final piece in SA’s junk puzzle?

The firm has negative outlooks on seven EM countries – Brazil, China, Colombia, Egypt, Lebanon, Poland, Russia, South Africa, and Venezuela – while only two – Indonesia and Pakistan – have positive outlooks.

A positive or negative outlook means there is least a one-in-three chance of a rating change in the indicated direction.

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