State Of The Sovereigns

26/08/2011 at 4:35 pm 1 comment

Sovereign ratings downgrades have been making headlines for some time this year, but Moody’s downgrade of Japan on Wednesday caused hardly a ripple. This was not a surprise: Japan has been on “negative outlook” with the ratings company since May, the downgrade was small in magnitude (only one notch), and the sovereign remains highly rated at Aa3 (Moody’s equivalent of AA-, where S&P has rated the country since the beginning of the year).

Despite the high level of public debt in Japan – about 200% of GDP and rising – the high rating is arguably justified. Public debt is locally held, interest rates are low, and Japan is a highly developed and prosperous economy with over $1trn in reserves.

Nonetheless, readers might find it interesting for purposes of comparison to take a short tour of sovereign debt ratings around the world.

Starting with Europe, an especially high profile area, the range is all-encompassing, from AAA-rated sovereigns (large, such as Germany and France, or small, such as Austria and Finland), to Greece, standing on the brink of default at CC and famously the lowest-rated sovereign borrower in the world. In the middle are grouped the central and eastern countries, with Slovenia at the top (and at AA more highly rated than Italy), through Poland (single A), Russia (BBB), Turkey (BB) and others to Soviet throwback Belarus (B-).

The Americas also cover a full range of ratings. After S&P’s downgrade of the US, Canada is the only pure AAA. The other significant north American economy is of course Mexico (BBB). South and central America and the islands are mostly borderline or sub-investment grade apart from more strongly rated Chile (AA- / A+) and the offshore havens Bermuda (AA) and the Caymans (AA-).

Skipping west to the Pacific Rim, the only unequivocal AAA is Singapore (Australia is rated AA+ at Fitch and S&P has its AAA under review). China, Hong Kong, Taiwan and South Korea are all strongly rated in the AA / A range. Malaysia (single A) and Thailand (BBB+) get investment grade ratings, but the other tigers don’t do quite so well: Indonesia (BB+), the Philippines (BB) and Vietnam (BB- / B+) all fall into speculative territory.

Continuing the journey into Asia there are no very highly rated sovereigns at all. Kazakhstan leads the pack at BBB, beating India (BBB-) into second place. Mongolia, Bangladesh, Pakistan and Sri Lanka are all sub investment grade.

Which leaves Africa and the Middle East. Again, there are no AAAs, but Saudi Arabia and a few of the other Gulf states sit in secure AA territory. The north African countries are rated pretty closely together in the BBB / BB area. Of the others, key economy South Africa is solidly investment grade at A- / BBB+, whereas the few other states that are rated mostly come in at single B (even regional giant Nigeria).

The extent to which the world’s richer countries have put their economic security at risk has attracted much attention of late, and rightly so. But at the same time, these ratings show how some poorer countries have been closing the gap on their developed peers.

The continuing challenge to traditional perceptions of developed vs. emerging market risk will present opportunities as well as threats.

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Meltdown – Cont. … The Dove Ascending

1 Comment

  • 1. Dying Breed « The Blog @ Vigilant Financial  |  08/06/2012 at 4:06 pm

    […] fact, since we last looked at government bond ratings around the world, those rated “AAA” (as near as it’s possible to get to risk free) have become […]

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