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Country Risk Report. Third Quarter 2017


Financial markets’ risk-on mood tightens sovereign spreads beyond fundamentals, while financial disequilibria turn on some warning signals in some Advanced Economies

Summary: Financial markets’ risk-on mood tightens sovereign spreads beyond fundamentals

  • Greece was upgraded by Moody’s and Fitch. Chile was downgraded by S&P and Fitch. Qatar was downgraded by the three agencies. South Africa was downgraded by Moody’s
  • Global risk aversion has been steadily decreasing since Feb-2016, strongly tightening sovereign spreads. The bulk of sovereign CDS are at, or close to, their minimum historical levels, which should warn us that there is no much room for further decreases
  • Overall, the net aggregate of vulnerabilities seem to be improving in most EMs (less external vulnerabilities) and seems stable in the Periphery of EU, lower private leverage, while old problems persist (high unemployment, high public and external debt, etc.)
  • Leverage growth continues to moderate in China, although housing price growth is still high. Its accumulated excess leverage still prompts a significant warning
  • However, we observe signs of fast growth in private leveraging and in housing prices in some Advanced Economies such as Canada, Australia, Norway and some North-European countries (Belgium, Finland). More recently, some warning signals are also showing up in USA related to faster increase of credit
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