Fitch lowers credit outlook on emerging economies

AP
Fitch lowers credit outlook on emerging economies
Monday November 10, 6:50 am ET
By Kelly Olsen, AP Business Writer
Fitch Ratings lowers credit outlooks on 6 emerging economies amid financial crunch

SEOUL, South Korea (AP) -- Fitch Ratings on Monday lowered the sovereign credit rating outlooks for six emerging market economies to reflect higher risks to creditworthiness stemming from the global financial crisis and economic slowdown.

The outlooks on the long-term foreign currency ratings for South Korea, Mexico, Russia and South Africa, were revised down to "negative" from "stable," Fitch, one of the three major international credit ratings agencies, said in a release. A negative outlook means there is a greater chance of the actual credit rating being downgraded.

Outlooks on Chile and Malaysia, meanwhile, were lowered to "stable" from "positive," the agency said.

South Korea's A+ rating is four notches below Fitch's highest of AAA and six notches above "speculative" grade, generally regarded as "junk."

Russia, Mexico and South Africa are all rated BBB+, three levels above "speculative." Chile is at A, and Malaysia is at A-.

"The profound shift in the global economic and financial outlook pose significant real economy and policy challenges for emerging markets," David Riley, head of Fitch's Global Sovereign Ratings Group, said in a statement.

Riley said that policymakers in emerging economies have less room for mistakes than their counterparts in advanced countries, though are in a better position to deal with the current challenges than at any time in the past.

"Nonetheless, the risks of economic and financial stress that could undermine sovereign creditworthiness have risen and that is reflected in the prospective ratings actions taken today," he said.

Fitch said the action followed a global review of the ratings of 17 major emerging market economies carried out "in response to the profound deterioration in the global economic and financial outlook."

Bulgaria, Kazakhstan, Hungary and Romania had their credit ratings downgraded by Fitch.

Brazil, China, India, Peru, Poland, Taiwan and Thailand had their ratings affirmed.

The agency said that contagion from the global financial crisis in advanced economies "triggered extreme volatility in emerging market asset prices" and caused "liquidity strains."

Foreign investors have fled emerging markets in droves during the crisis, cashing out of stock markets and sending funds back to their home economies and currencies.

Fitch praised the response to the crisis by international financial authorities including the U.S. Federal Reserve, the European Central Bank, the European Union and the International Monetary Fund.

"In large part due to the impressive speed and scale of the response ... the risk that the financial market crisis would spiral into a broader economic and sovereign credit crisis has significantly eased," Fitch said.

In South Korea's case, Fitch expressed concerns that government support for the country's banks amid the credit crisis could undermine its external credit and foreign exchange reserve position.

South Korean banks and companies have struggled to secure U.S. dollars needed to meet foreign currency debt obligations as international lending has dried up amid the global credit crunch.

For Malaysia, Fitch said it considered the likely impact on the country's balance of payments from lower oil and other commodity prices along with weaker demand for electronics exports.

"Malaysia is one of Asia's more open economies and the region's only significant net oil exporter," Fitch said.

Commentary: This is Fitch's vote of non-confidence in the Korean Government's current strategies and reform plans which appear too little too late as the fox has already left the chicken coop? On the brighter side there is a long way to go to junk status.