This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Downgrade Alone Won't Kill an Emerging Market

NEW YORK (The Street) -- While few investors are rushing to pour money into Ukraine bonds or shares, a major downgrade may not be the deciding criterium. 

To be sure, the greater likelihood of default captured in a poor credit rating is some reflection of the stability and quality of investments in that country.

Standard & Poor's downgrade of the Ukraine's foreign currency rating to CCC on Friday reflected the agency's view on the Ukraine's risk of default. "At this level we are saying they will likely default in the next 12 months if they can't secure external funding," London-based S&P analyst Ana Jelenkovic told The Street, stressing the move was an assessment of credit worthiness rather than investment risk. As if to illustrate her point, Ukraine bonds rallied on Friday on news of a peace deal between President Yanukovych and opposition leaders.

Elsewhere, Argentina illustrates the frequent disconnect between sovereign credit ratings and investment return. Its domestic stock market jumped 80% in 2013 and has returned another 10% so far this year. S&P has a credit rating of CCC+ on the nation with a negative outlook, citing increasing legal risks on Argentina's defaulted debt.

Last year, Argentina's stocks were fueled by signs of an economic recovery and the return of global risk appetite. But S&P's rating may well come home to roost for the South American republic this year, with analysts warning of a growing risk of renewed recession. That may matter little to punters who were lucky enough to call Argentina's rally last year, provided they read the tea leaves in time to cash out.

Must Read: Why You Should Care About Chinese Manufacturing

Generally, a foreign currency rating below BBB- means a nation has a higher risk of failing to meet its funding obligations. Countries which fall into this hallowed basket include Greece, Egypt, Cyprus, Jamaica, Lebanon, the Congo and Pakistan.

Another example of the disconnect was seen when the U.S. lost its prized AAA credit rating in August 2011 over wrangling around the budget deficit and debt ceiling. The U.S.'s credit rating was cut to AA+, triggering fears at the time of impact to the greenback's reserve currency status. But ratings are all relative. Few other nations had superior ratings at the time and the greenback held its reserve aura.

The short story: credit ratings are important, but assess investments on other merits before rushing to cash your Argentine shares.

-- By Jane Searle in New York

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.18 1.64%
FB $117.43 -0.96%
GOOG $692.36 -0.84%
TSLA $232.32 -3.92%
YHOO $36.01 -1.42%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs