Risky Credits: Silver Lining For Emerging Markets

The number of issuers rated 'CCC+' and lower decreased to 16 as of December 2023, from 17 as of September 2023. Risky credits now constitute 11% of the speculative-grade universe in emerging markets.

In the fourth quarter of 2023, the pace of defaults in emerging markets was lower than that in the U.S. and Europe. Downward transition risk remains pronounced, with the ratings on 88% of issuers rated 'CCC+' and lower on a negative outlook or on CreditWatch negative.

Financing conditions improved slightly on the back of the recent positive market sentiment toward the Fed. Yet, borrowing costs remain tight, constrain speculative-grade issuers' access to foreign markets, and render refinancing options on average 3x more expensive, compared with the coupon rates at the time of the initial issuances.

Rising Challenges For Interest Rate Cuts

External developments could prompt emerging market (EM) central banks to be more cautious about cutting interest rates.The recent rise in commodity prices, particularly oil, increases the risk of renewed inflationary pressure, particularly for net energy importers. Furthermore, incoming U.S. data, both on activity and inflation, have led to a re-pricing in the federal funds rate, pushing cuts further out into the future, with a similar impact on benchmark rates in several major EMs, especially in Latin America (LatAm).

Industrial and precious metal prices have jumped over the last few months.Higher demand in China and expectations with regards to upcoming supply constraints have all contributed to the recent metal prices rally. Several metal-exporting EMs--such as Peru, Chile, and Indonesia--will benefitif prices remain high.

We expect growth in EMs to diverge significantly this year. Economic growth will moderate for many countries that previously outperformed in 2023 (such as Brazil, Mexico, and India) but conversely, some countries that underperformed last year are expected to pick up later in 2024 (such as Chile, the Philippines, Poland, and Vietnam).

Corporate spreads continue their gradual descent while remaining sensitive to external influences. This spurred record financial and non-financial corporate issuance in March, particularly unrated, with investment-grade issuance remaining sound and speculative-grade issuance slightly opening in the ‘BB’ category; however, still far from 2019-2021 levels.

Latin America Structured Finance Outlook 2024: Increased Issuance Amidst Low Economic Growth

We expect 2024 new issuances in Latin America to increase 15% relative to 2023.

Brazil will continue to account for the bulk of issuance.

Ratings performance should remain stable, despite the challenging economic environment in the region.

GCC Banks' Climate Transition Journey Has Only Just Begun

In this FAQ, S&P Global Ratings addresses questions from investors on the potential effects of climate transition risks on banks in the Gulf Cooperation Council (GCC) region.

We think that these risks are complex, multidimensional, and nonlinear, and that they will evolve over a very long period.

We reviewed rated GCC banks' exposures to sectors that are most vulnerable to climate transition risks, the banks' level of preparedness, and their status of climate risk reporting.

Asian Emerging Market Currencies Will Chart A Comeback

Following a decade of sizable real depreciation against the U.S. dollar, Asian emerging market (EM) currencies are now cheap enough to suggest potential for long-term appreciation.

The low valuations and prospects for continued economic catch up should help the currencies strengthen in real terms against the U.S. dollar, with nominal appreciation probably playing a crucial role.

Our benchmarks suggest much larger room for appreciation for some Asian EM currencies than for others; currency prospects also differ for developed economies.

Red Sea Disruptions: Impact On Rated Qatari Entities Exposed To Oil And Gas

The disruptions in Red Sea traffic as a result of ongoing geopolitical tensions in the Middle East are adversely affecting global trade flows.

A significant portion of shipping that would usually pass through the Suez Canal is rerouting around the Cape of Good Hope.

Diverted shipments include liquefied natural gas and oil exports from Gulf Cooperation Council countries, particularly Qatar, going north to Europe

We believe that the diversions will have a minimal impact on rated Qatari entities exposed to oil and gas since their customers are predominantly in Asia.

A closure of the Strait of Hormuz would be far more significant for these rated companies and the global hydrocarbon market.