S&P Global Ratings cut its sovereign credit score for Mexico by one notch to “BBB,” saying shocks from the spread of COVID-19 and an oil price rout would harm the country’s already grim economic outlook.
In their statement, S&P also said that Mexico would remain on credit watch negative, reflecting the possibility that its rating could be cut a second time within a year or two.
“Prolonged poor fiscal performance and a resulting rising debt burden, or the risk of potentially weak policy implementation, could lead us to lower the rating,” S&P analysts Lisa Schineller and Joydeep Mukherji wrote in the decision.
For Mexican President Andres Manuel Lopez Obrador — who is already contending with an economic slump, the virus, and a steep decline in business confidence — the S&P decision is yet another in a long list of setbacks.
While the downgrade was widely expected after Mexican assets fell, it confirms just how dire the situation is for an economy that some experts see contracting near 6 percent, a similar scenario to the Tequila Crisis of the mid-1990s.
“While we were surprised by the timing, we were not surprised by the downgrade itself and the negative credit watch,” Emso Asset Management senior portfolio manager Jens Nystedt said. “It shows the growth and fiscal challenges Mexico is facing and those have been made worse by the likely impact of the COVID-19 virus.”
Nystedt added that while Mexico’s investment grade rating is not yet at risk, state oil company Petroleos Mexicanos’ (Pemex) might be over the next few months. It has already been downgraded to junk by Fitch, and Moody’s Investor Service has it on negative watch to lose investment grade.
Despite the government’s strict adherence to fiscal discipline, it is the poor economic prospects that analysts worry could lead to further credit downgrades in the future.
“The probability of another downgrade to materialize in the next 12 to 24 months is not low,” BBVA strategist Claudia Ceja said. “Another downgrade would depend on the ability to implement public policies amid the risks that the economy will keep on facing.”
Mexico’s peso reversed gains and fell 1.4 percent to 23.2630 per US dollar after the downgrade.
The S&P analysts also mentioned potential increases in contingent liabilities from Pemex, which has been hammered by the oil price plunge this year.
Investors have long feared that the Mexican sovereign would need to do more to support the company as it struggles under a debt burden of more than US$100 billion.
In the decision, S&P highlighted the shift in energy policy under Lopez Obrador, which the analysts said has increased the country’s reliance on the oil company.
Sales across Taiwan’s food and beverage sector nosedived 22.8 percent year-on-year to NT$47.9 billion (US$1.59 billion) last month, the largest decline in 20 years, the Ministry of Economic Affairs said yesterday. One of the first victims of the COVID-19 outbreak, the sector has posted double-digit annual declines in sales for three months in a row. “Restaurants ... took the biggest hit, as the strict anti-epidemic measures implemented have had a notable impact [on revenue],” Department of Statistics Director-General Wang Shu-chuan (王淑娟) told a news conference in Taipei, referring to seating schemes spacing diners further apart. “Consumers are also less willing to eat
‘PERFECT TIMING’: The updated requirement would free up 4 million more masks per day for manufacturers, which are expected to sell up to 8 million units daily The government would requisition 8 million masks daily to ensure that the nation has sufficient supplies after a ban on mask exports is lifted on Monday next week, Minister of Economic Affairs Shen Jong-chin (沈榮津) said yesterday. “We have decided to lower the requirement from 12 million units to 8 million units per day, providing them [local mask suppliers] with 4 million more masks to sell freely according to market mechanisms,” Shen told reporters after a meeting with domestic mask manufacturers. The figure was determined based on local market demand, Shen said, pointing to declining mask purchases as Taiwan gets its COVID-19
IPO MOMENTUM CLOUDED: The major questions are whether fallout from Beijing’s proposed security bill would affect the return of capital and the US’ response to the bill Risks are mounting for Hong Kong’s stock market, the world’s fourth-largest, after the biggest plunge for the benchmark gauge in five years. China’s shock decision last week to impose a law cracking down on dissent has led to a flare up of protests in the territory, sparked concern over capital outflows and increased tensions with the US. That has placed Hong Kong, and its financial markets, on the front lines of a growing clash between the world’s two largest economies. The Hang Seng Index plummeted 5.6 percent on Friday, its worst drop since July 2015, when a bubble popped in China. A
Local banks’ combined exposure to China in the first quarter dropped for the third consecutive quarter, to NT$1.62 trillion (US$53.86 billion), as they trimmed investment and loan positions amid the COVID-19 pandemic, Financial Supervisory Commission (FSC) data showed. Their exposure fell 1 percent from the previous quarter, compared with a 4.9 percent decline to NT$1.64 trillion at the end of December last year and a dip of 2.1 percent to NT$1.73 trillion at the end of September, the data showed. “Exposure has been declining since the second quarter last year, as lenders’ clients did not need as much funding as before after