A welter of sovereign downgrades reached record levels in the second quarter of 2016. Early signs of rating downgrade abatement in the third quarter of 2016 suggest the worst may be over for commodity-related sovereign downgrades, according to the latest Sovereign Risk Review released today by IHS Markit (Nasdaq:INFO), a world leader in critical information, analytics and solutions. This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20161111005020/en/
Number of all sovereign ratings actions Q1 2014 to Q3 2016 - IHS Global Insight (Photo: Business Wire)
The quarterly IHS Sovereign Risk Report compares and assesses every sovereign nation worldwide across ratings agencies and fills in the industry's long-neglected market space of short-term sovereign credit risk. Between June and August 2016, sovereign risk rating downgrades exceeded upgrades by 24 to 16. Africa again had the most downgrades as Turkey and Mongolia became downgrade hot spots. "For Turkey, the main concern raters have is with the weakening of institutions and the rule of law in the post-coup purge," said Jan Randolph, director of sovereign risk at IHS Global Insight. "The purge removed several thousand technocrats from government institutions and court systems. Replacing this number of civil servants with qualified employees will be a nearly impossible task." Mongolia, once the darling of inward investors in emerging markets, is one of the worst hit by the commodities downturn. "With still weak global demand for commodities, especially from neighbouring China, strained relations with investors, and large debt repayments due during the next few years, Mongolia finds itself in a very difficult situation." Ratings trends to watch in 2017Brexit: The two major EU powers, Germany and France, have made it repeatedly clear that free movement of people is indivisible with the free movement of goods, capital and services in the single market. Any loss of UK access to the EU's core single markets (i.e. a 'hard BREXIT') could materially undermine the UK's medium term growth prospects, add pressure to UK fiscal account and ultimately lead the UK sovereign downgrade. Finally, some good news for Russia and Brazil: The commodity price drop has taken its toll on a number of countries. Russia, Brazil and South Africa are likely to return to some very modest growth in 2017 after a few years of negative or low growth. "These three countries adopted relatively early and painful remedial policy measures to protect their bottom line in foreign exchange reserves," Randolph said. "Between these reforms and the stabilised commodity prices, we are likely to finally see some very modest growth for Russia, Brazil and South Africa in 2017."