China joined emerging markets from Turkey to Colombia whose debt ratings may rise, a trend that might make it cheaper for them to borrow, while escalating pressures for their currencies to appreciate.
China may be upgraded within three months from the fifth-highest ranking of A1, Moody’s Investors Service said in an e-mail yesterday, citing the nation’s economic strength and ability to contain losses from unprecedented lending.
The ratings company also cited what it termed an effective stimulus program, which is now being unwound, the central government’s credit fundamentals and the likely containment of losses from record lending. China’s growth accelerated to as fast as 11.9 percent in the first quarter of this year after an unprecedented US$1.4 trillion of lending last year.
“The credit quality of emerging markets is now seen as having substantially improved, this is really unprecedented,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings PLC in Hong Kong.
“That’s why we are seeing tremendous capital inflows, making it a double-edged sword for emerging markets,” Neumann added.
The Shanghai Composite Index closed 3.1 percent higher, the biggest gain in four months.
“Certainly this adds to the pressure on China to accelerate the pace of renminbi appreciation,” Prakash Sakpal, an economist at ING Groep NV, said in a telephone interview from Singapore, referring to the Moody’s decision. “An upgrade would reflect China’s strong economic growth outlook, which is another way of saying you need a stronger currency.”
Moody’s on Tuesday raised the outlook on Turkey’s rating for local and foreign-currency debt to positive from stable. Colombia may be raised to investment grade next year and the rankings of Bolivia, Paraguay and Uruguay may also increase, Gabriel Torres, an analyst at Moody’s Investors Service in New York, said yesterday.
By contrast, public debt in some of the world’s largest economies is on an “explosive path,” Standard & Poor’s said in a report yesterday.
In Europe, mounting fiscal problems forced Greece to seek a EU-led bailout in May, while Irish and Portuguese borrowing costs have soared on concern that they may also need aid.
Other analysts have signaled greater concern.
Fitch Ratings said on Sept. 17 China could face a “hangover” from stimulus efforts last year, including strong credit growth, “which could still see the emergence of problems requiring sovereign support to clear up, for example in the banking system.”
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