Emerging Markets Risky Credits: Issuance Activity And Deleveraging Plans

The number of issuers rated 'CCC+' and lower has decreased to 13 as of September 2024, or 9.6% of the speculative-grade universe. Four of the 13 risky credits have a negative outlook.

Financing conditions loosened further in the second quarter, spurring some 'CCC+' and lower rated issuance for the first time since November 2021. Risky credits tapped the market for refinancing purposes, and should be able to keep doing so provided macroeconomic and political uncertainties and geopolitical risks do not worsen.

Forecasted financial ratios point to gradual deleveraging and a pick-up in liquidity profiles and interest coverage ratios. But this will be to the detriment of capital expenditure in 2025-2026.

Rising Protectionism Will Challenge Resilience

We expect rising trade protectionism among major economies to hurt GDP growth in most emerging markets (EMs), though its impact will depend on policy specifics. Trade diversion and potentially tighter rules of origin are two factors that could influence macroeconomic conditions in EMs in 2025.

U.S. protectionism will weigh on EMs’ credit conditions. However, we expect falling interest rates and steady, albeit slower, economic growth to provide resilience. Yet, higher-than-expected tariffs on China or broader levies are important downside risk for growth and financing conditions in EMs.

We expect EM central banks to adopt a more cautious stance, but monetary easing will continue. We forecast 100 basis points (bps) of policy rate cuts on average for EMs in 2025, which should support financing conditions. Brazil is the exception, where more interest rate hikes are likely in the coming months due to rising inflation.

EM benchmark yields displayed a downward trend in the month, with tight corporate spreads at low historical levels. However, U.S. political elections bring downside risks to financing conditions, mostly linked to the risk of higher inflation and interest rates. Issuance volume (excluding from China) was relatively low in November, despite record levels year to date.

Mexican Structured Finance Market Update: Spotting Opportunities Amid Economic Challenges

Demand for financing in the industrial, retail, and office sectors--coupled with a growing real estate market--is creating opportunities for CMBS (commercial mortgage-backed securities) transactions, primarily in the northern region.

There's also potential for cross-border transactions, which encompass various financial assets, properties, future flows, remittances, etc. However, foreign exchange exposure and a potential sovereign rating ceiling could be roadblocks.

Demand for data centers' data storage and processing capabilities has been growing globally, and Mexico is no exception, translating to an opportunity for structured finance transactions in that sector.

Repackaged ABS securities are widely used in Latin America to finance mainly infrastructure and related projects. With the Mexican government's significant need for infrastructure funding, we believe repackaged securities are a potential alternative to tap the international markets.

Saudi Private Healthcare: Vital Signs Are Strong

We anticipate sustainable strong demand for private healthcare providers in Saudi Arabia, thanks to favorable demographics, ambitious national transformation program targets, and relative under-penetration.

While the private healthcare sector is fragmented in Saudi Arabia, most providers plan to expand, and we expect this to boost their profitability margins and market share.

We expect that private domestic players' credit quality will depend on their cash-collection trends, the flexibility of their cost structures, and their financial-policy commitments.

Paving The Way: Efficient Infrastructure Key To Emerging Asia's Growth

A marked improvement in infrastructure and logistics will support the next leg of growth for the emerging markets of Asia.

Economies can unlock higher growth rates through accelerated investment in infrastructure assets on top of infrastructure efficiency gains.

The pandemic eroded budget capacity, which will constrain public capital spending. Improving so-called soft aspects of infrastructure such as the regulatory environment can support faster economic growth.

Banks In Central Asia And The Caucasus Rush To Grab A Slice Of The Digital Pie

Rapidly developing technology, improving affordability, and growing mobile and internet connection in Armenia, Azerbaijan, Georgia, Kazakhstan, and Uzbekistan support strong growth of digitalization of financial services.

Banks are investing in digital platforms to meet growing demand from clients for mobile and online financial services. We expect digital leaders to strengthen their market positions; those lagging behind face widening technology gaps.

In Armenia, Azerbaijan, Georgia, Kazakhstan, and Uzbekistan a few dominant players have stable market positions that smaller banks and fintech players are unlikely to challenge in the near term.

Lending and deposit-taking are less vulnerable to the digital disruption but banks face tougher competition in digital payments. This could encourage banks to further acquire fintechs, including cross-border transactions.

Geopolitical risks are driving digital innovation through migration-induced knowledge transfer but also pose negative effects such as increased control over internet services, cybersecurity risks, regulatory risks, and risks related to political tension.