"China's High Growth Makes Latin America More Resilient to Negative Shocks."...might translate into more sovereign rating upgrades for Latin America, a Moody's report said Thursday.
A rating snapshot from Moody's as of September 10 shows 11 Latin American countries are rated investment grade and 17 speculative grades. But even in this latter category, only one -- El Salvador -- has a negative outlook.
The countries on review for possible upgrade are Paraguay, Uruguay and Bolivia, all in the speculative grade category.
Moody's: China's High Grwth Could Benefit More Latam Sovereign Ratings
By Yali N'Diaye
WASHINGTON (MNI) - China's dynamic growth might translate into more sovereign rating upgrades for Latin America, a Moody's report said Thursday.
"Partly as a result of China-related shocks, commodity-exporting countries in the region with the closest links to China -- Brazil, Chile and Peru -- have seen their ratings increased the most since 2005, and others may follow," Moody's writes in a report titled "China's High Growth Makes Latin America More Resilient to Negative Shocks."
A spokesman clarified to Market News International that the countries likely to follow are those "that may see a positive ratings trend in the short to medium term, given that they have either a positive outlook on their ratings or are on review for possible upgrade."
Brazil, which is rated investment grade, and Colombia, which is still in the speculative grade category, do have a positive outlook, although Brazil's government finance situation is considered "low," the weakest of the IG-rated countries in the Latin American region.
The countries on review for possible upgrade are Paraguay, Uruguay and Bolivia, all in the speculative grade category.
The report highlights that China has become one of the most important export markets for Latin American countries, especially for Argentina, Brazil, Chile, Costa Rica, Peru and Venezuela, and this trend is likely to continue for two reasons.
First, China and Latin America are "'natural' trade partners," given that one region produces commodity goods and the other consumes them.
The second reason is that the "Chinese economy is expected to continue to report robust growth in the coming years."
China's strong growth and growth prospects are also having "indirect" spillover effects through higher commodity prices.
"While commodity prices temporarily declined in 2009, they are on a rising trend once again," the report said. "Accordingly, countries with high export exposure to agricultural, energy and mining sectors are benefiting the most."
The reason China's dynamic activity is benefitting Latin America credit ratings more than in the past, besides the growing importance of China as an export market, is that latin American countries have been moving away from high debt and deficit policies in recent years to instead focus on strengthening their fiscal and external positions through debt reduction or foreign reserves and asset accumulation.
"This strengthens creditworthiness and may result in upward rating pressure," commented analyst Sergio Valderrama.
He added those recent policy orientations have actually given "additional room to maneuver during the economic crisis in 2009."
So if Latin American governments hold on to such policies, commodity-exporting countries from Latin America "will be better positioned to absorb adverse external shocks and ratings could be in a position to rise," the analyst concludes.
A rating snapshot from Moody's as of September 10 shows 11 Latin American countries are rated investment grade and 17 speculative grades. But even in this latter category, only one -- El Salvador -- has a negative outlook.
The report does not address China's economic performance outlook should the country let its currency float, something the U.S. has been pushing for years.
In fact, Treasury Secretary Timothy Geithner highlighted again before the Senate Banking Committee Thursday how critically important it is that China adjusts its foreign exchange regime.
He stressed China's adjustments on that front are "too limited" and "too slow," adding China needs "significant, sustained" FX appreciation "over time.'
** Market News International Washington Bureau: 202-371-2121 ** |
