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Country Risk Report. Second Quarter 2016

By , , ,

Argentina was upgraded by the three agencies after its return to the bond markets. Ireland was upgraded by Moody’s. Fitch downgraded Brazil and upgraded Hungary. The market pressure (downgrades/upgrades) has stabilized after a calmed quarter. Turkey, Chile, Colombia, China and Malaysia still on the spotlight.


Summary

Sovereign markets and ratings agenciesupdate

 

  • Argentina was upgraded by the three agencies after its return to the bondmarkets. Ireland was upgraded by Moody’s. Fitch downgraded Brazil andupgraded Hungary.
  • The market pressure (downgrades/upgrades) has stabilized after a calmedquarter. Turkey, Chile, Colombia, China and Malaysia still on the spotlight.
  • In the last 3 months we have relived in the markets the same cycle of turmoil-calmexperienced in the second half of last year and during the “Taper tantrum” in 2013. Onceagain, reassuring policy signals from China, lessened concerns on US recession and CBwording and actions have helped to reduced volatility in financial markets.
  • However, financial markets remain cautious and mild capital outflows from EMs have comeback again during May in front of FED’s lift off perspectives. More recently, uncertainty events(i.e. Brexit referendum) are weighing on the come back of the risk off mood.

Country risk assessment

  • Leverage level is still worrisome throughout developed economies in spite ofsustained private deleveraging process across the board.
  • In EM, differentiation matters: Private leverage is the main vulnerability in EMEurope; low GDP growth in LatAm and fiscal vulnerability in EM Asia.
  • All in all, the most relevant risks for the global scenario are:
    • China’s unbounded private indebtedness
    • The unintended consequences of the Fed’s incoming tightening against the background ofdamaged balance sheets in EM corporates.
    • In addition, various political and geopolitical risks could emerge, including Brexit andpolitical elections in Spain and the US.

Index

  1. Sovereign markets and ratings update
    • Evolution of sovereign CDS by country
    • Evolution of sovereign ratings
    • Market downgrade/upgrade pressure
  2. Macroeconomic vulnerability and in-house Regional country risk assessment
    • BBVA-Research sovereign ratings by regions
    • Equilibrium CDS by regions
    • Vulnerability Radars by regions
    • Public and private debt levels
  3. International financial markets, global risk aversion and capital flows
    • Financial tensions
    • Capital flows
  4. Assessment of financial and external disequilibriaVulnerability Indicators table by country
    • Private credit growth by country
    • Housing prices growth by country
    • Early warning system of banking crises by regions
    • Early warning system of currency crises by regions

Methodological Appendix

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