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Fitch lowers credit outlooks

Fitch Ratings yesterday lowered the sovereign credit rating outlooks for six emerging market economies to reflect possible increased burdens stemming from the global credit crisis and slowing economy.

The long-term foreign currency ratings outlooks for South Korea, Mexico, Russia and South Africa, were revised down to “negative” from “stable,” Fitch said in a release. Outlooks on Chile and Malaysia, meanwhile were downgraded to “stable” from “positive.”

“The profound shift in the global economic and financial outlook pose significant real economy and policy challenges for emerging markets,” David Riley, head of Fitch’s Global Sovereign Ratings Group, said in a statement.

Riley said that policymakers in emerging economies had less room for mistakes than their counterparts in advanced countries, though are in a better position to deal with the current challenges than at any time in the past.

“Nonetheless, the risks of economic and financial stress that could undermine sovereign creditworthiness have risen and that is reflected in the prospective ratings actions taken today,” he said.

Fitch said the action followed a global review of the ratings of 17 major emerging market economies carried out “in response to the profound deterioration in the global economic and financial outlook.”

Bulgaria, Kazakhstan, Hungary and Romania had their credit ratings downgraded by Fitch.

Brazil, China, India, Peru, Poland, Taiwan and Thailand all had their ratings affirmed by Fitch.

The agency said that contagion from the global financial crisis in advanced economies “triggered extreme volatility in emerging market asset prices” and caused “liquidity strains.”

Foreign investors have fled emerging markets in droves during the crisis, cashing out of stock markets and sending funds back to their home economies and currencies.

Fitch praised the response to the crisis by international financial authorities including the US Federal Reserve, the European Central Bank, the EU and the IMF.

“In large part due to the impressive speed and scale of the response ... the risk that the financial market crisis would spiral into a broader economic and sovereign credit crisis has significantly eased,” Fitch said.

In South Korea’s case, Fitch expressed concerns that government support for the country’s banks amid the credit crisis could undermine its external credit and foreign exchange reserve position.

South Korean banks and companies have struggled to secure US dollars needed to meet foreign currency debt obligations as international lending has dried up amid the global credit crunch.

For Malaysia, Fitch said it considered the likely impact on the country’s balance of payments from lower oil and other commodity prices along with worsened demand for electronics exports.
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