Hungary's return to investment grade is likely in 2016

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Euro Area ◽  
Credit Rating ◽  
Investor Sentiment ◽  
Content Type ◽  
East European ◽  
Rating Agencies ◽  
The Core ◽  
Investment Grade

Significance Moody's, another agency which also rates Hungary one notch below investment grade, has just raised its outlook on Hungary's rating to 'positive' from 'stable'. Hungary's financial markets are closely correlated with those of the core of the euro-area and are benefiting from heightened expectations that the ECB will provide a further burst of monetary stimulus at its next policy meeting on December 3. Impacts Financial markets have already 'priced in' the credit-rating agencies' assessments so other factors will drive investor sentiment changes. Forex-denominated mortgages are considered to be one of the main sources of financial vulnerability in Emerging Europe. Hungary is the only Central-East European (CEE) country to have resolved this vexed issue. CEE is the EM region likely to benefit the most from aggressive ECB monetary stimulus offsetting the fallout from higher US interest rates.

Another rating upgrade is likely for Hungary soon

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Banking Sector ◽  
Credit Rating ◽  
Emerging Market ◽  
Investor Sentiment ◽  
Central Banks ◽  
The Philippines ◽  
Content Type ◽  
Investment Grade

Significance Hungary thereby regains investment-grade status, albeit at the lowest level, from being downgraded to 'junk' because of doubts about the government's policies and the high public debt burden. Hungary's improving creditworthiness, underpinned by its current account surplus and deleveraging in the banking sector, contrasts with the increasing strain on Poland's credit rating. Political risk has become a major driver of investor sentiment towards emerging markets. Impacts Emerging market assets have become more vulnerable as investors reprice US monetary policy. Futures markets are now assigning a 51% probability to another rise in US interest rates at or before the Federal Reserve's July meeting. Central Europe's government bond markets are being supported by the persistently dovish monetary policy stance of its central banks. This contrasts with Latin America, where inflationary pressures are forcing many central banks to raise rates. Brazil, Turkey, Poland and the Philippines are among several countries where political uncertainty is a key determinant of asset prices.

CEE's own risks pose a greater threat than China

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Latin American ◽  
Investor Sentiment ◽  
Government Bonds ◽  
Content Type ◽  
East European ◽  
Asset Class ◽  
Trade And Financial Linkages ◽  
Better Than

Subject CEE markets' resilience to China-induced sell-off. Significance While investor sentiment towards emerging markets (EMs) has deteriorated further because of mounting concerns about China's economy and financial markets, the currencies and government bonds of the main Central-East European (CEE) economies have proved remarkably resilient. Even equity markets, which have suffered sharp falls across the EM asset class, have fared better than in other regions, with Polish, Hungarian and Czech stocks falling by 5.0-6.0% in dollar terms in August, compared with 10.0% and 9.5% for emerging Asian and Latin American shares, respectively. CEE markets' resilience stems from the region's negligible trade and financial linkages to China, relatively strong fundamentals and the sentiment-boosting effects of the ECB's programme of quantitative easing (QE). Impacts EMs' significantly stronger fundamentals make comparisons between the current China-led sell-off and earlier crises in the 1990s misleading. There will continue to be a strong correlation between CEE financial markets and price action in the euro-area. The ECB's full-blown QE should help mitigate the adverse effects of a rise in US interest rates. Very high foreign participation in Polish and Hungarian government debt poses a risk should sentiment towards EMs deteriorate more sharply.

Turkey may be edging towards capital controls

2019 ◽  
Keyword(s):  
Central Bank ◽  
Financial Markets ◽  
Interest Rates ◽  
Foreign Exchange ◽  
Credit Rating ◽  
Capital Controls ◽  
Short Term ◽  
Content Type ◽  
Rating Agencies ◽  
Equity Funds

Significance A score below 100 indicates a pessimistic outlook -- the index has not exceeded 100 since March 2018. Increasingly frequent and heavy-handed interventions by the Turkish Central Bank (TCMB) to help shore up the lira have fuelled concerns in financial markets that Turkey is edging closer to full capital controls. Markets and credit rating agencies are particularly focused on Turkey’s dangerously low level of net foreign-exchange (FX) reserves, once short-term dollar borrowing is excluded. Impacts Renewed escalation of the trade conflict and continued dollar strength are turning inflows into EM bond and equity funds into outflows. Market expectations of a cut in US interest rates by the year-end will help mitigate recent marked declines in EM asset prices. The rise in the price of Brent crude since late 2018 will put pressure on major energy importers such as Turkey, fuelling inflation.

scholarly journals Liquidity, interest rates and house prices in the euro area: a DSGE analysis

2016 ◽  
Vol 9 (1) ◽  
pp. 4-25 ◽  
Author(s):  
Margarita Rubio ◽  
José A. Carrasco-Gallego
Keyword(s):  
Interest Rates ◽  
Monetary Union ◽  
Euro Area ◽  
House Prices ◽  
Housing Prices ◽  
House Price ◽  
Dsge Model ◽  
Content Type ◽  
The Core ◽  
Dynamic Stochastic

Purpose This study aims to build a two-country monetary union dynamic stochastic general equilibrium (DSGE) model with housing to assess how different shocks contributed to the increase in housing prices and credit in the European Economic and Monetary Union. One of the countries is calibrated to represent the core group in the euro area, while the other one corresponds to the periphery. Design/methodology/approach In this paper, the authors explore how a liquidity shock (or a decrease in the interest rate) affects house prices and the real economy through the asset price and the collateral channel. Then, they analyze how a house price shock in the periphery and a technology shock in the core countries are transmitted to both economies. Findings The authors find that a combination of an increase in liquidity in the euro area coming from the common monetary policy, together with asymmetric house price and technology shocks, contributed to an increase in house prices in the euro area and a stronger credit growth in the peripheral economies. Originality/value This paper represents the theoretical counterpart to empirical studies that show, through macroeconometric models, the interrelation between liquidity and other shocks with house prices. Using a DSGE model with housing, the authors disentangle the mechanisms behind these empirical findings.

Ultra-loose monetary policy will soon run its course

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Interest Rates ◽  
Mutual Funds ◽  
Investor Sentiment ◽  
Central Banks ◽  
Target Range ◽  
Content Type ◽  
Equity Mutual Funds

Significance Expectations that the Fed will refrain from hiking its benchmark rates from its target range of 0.25-0.5% and that the Japanese central bank will provide further stimulus are suppressing volatility in financial markets and fuelling demand for risk assets. However, evidence that "overburdened" monetary policy is losing its efficacy triggered a sell-off in bonds and equities on September 9, increasing the scope for sharper price falls as investors worry that central banks have run out of ammunition. Impacts Services expanded in August at their slowest pace since 2010, making it less likely that the Fed will raise interest rates this month. EM bond and equity mutual funds have enjoyed a surge in inflows since the Brexit vote as yield-hungry investors pour money into risk assets Oil, a key determinant of investor sentiment, will stay below 50 dollars/barrel unless major producers agree measures to stabilise prices.

Weak growth to weigh on South Africa's credit rating

2016 ◽  
Keyword(s):  
South African ◽  
Credit Rating ◽  
Good Governance ◽  
Content Type ◽  
Rating Agencies ◽  
Presidential Succession ◽  
Capital Outflows ◽  
Weak Growth ◽  
Investment Grade ◽  
Levels Of Support

Subject Outlook for South Africa's sovereign rating. Significance Recent decisions by the three main credit rating agencies to retain South Africa's investment-grade status following their respective mid-year reviews was met with relief within business and government circles. A downgrade to junk status risked a sharp depreciation in the rand, rising debt burdens, significant capital outflows and almost certain recession. The agencies will conduct their next reviews in December. Impacts Intra-ANC factionalism linked to the presidential succession will intensify after the municipal elections in August. If the ANC loses significant levels of support in major cities, its members may blame Zuma, possibly hastening his departure. Increased censorship by the state-owned South African Broadcasting Corporation will undermine good governance. High unemployment will persist, which, together with interest rate hikes, will dampen prospects for a recovery in consumption growth.

Inflation 'solution' should help avoid Brazil default

2016 ◽  
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Case Scenario ◽  
Current Crisis ◽  
Content Type ◽  
Rating Agencies ◽  
Primary Deficit ◽  
Political Conditions ◽  
The Government ◽  
Investment Grade

Significance Days before this announcement, the government asked Congress to approve a primary deficit of up to 96.65 billion reais (some 1.5% of GDP) for this year. The sharp deterioration in fiscal performance in recent years led the three main credit rating agencies to strip Brazil of its investment grade status between September 2015 and February 2016. A profound and prolonged recession and dysfunctional politics that make it difficult to address Brazil's fiscal shortcomings have also increased concerns over the sustainability of the country's sovereign debt. Impacts The depth of the current crisis could lead to political conditions for bolder economic reforms. However, that best-case scenario is out of reach for the current government. Even fortunate future governments would only enjoy a narrow window of opportunity to seek ambitious reforms.

Vietnam anti-corruption drive may have limited success

2018 ◽  
Keyword(s):  
Credit Rating ◽  
Content Type ◽  
Rating Agencies ◽  
High Profile ◽  
Limited Success ◽  
Orderly Transition ◽  
Investment Grade ◽  
General Secretary ◽  
Standing Problem ◽  
Party Congress

Subject Vietnam's corruption crackdown. Significance Vietnam’s latest anti-corruption drive is set to target more high-profile figures. The country has a long-standing problem with institutional corruption, but critics of the ruling Communist Party of Vietnam (CPV) see its crackdowns as politically motivated. Impacts Improvements in corruption indices may convince credit rating agencies to edge Vietnam closer to investment-grade status. Greater CPV discipline may help General Secretary Nguyen Phu Trong engineer an orderly transition of leadership at the 2021 party congress. Vietnam is likely to face greater international criticism over human rights violations.

The impact of market sectors and rating agencies on credit ratings: global evidence

2019 ◽  
Vol 20 (5) ◽  
pp. 389-410
Author(s):  
Kerstin Lopatta ◽  
Magdalena Tchikov ◽  
Finn Marten Körner
Keyword(s):  
Credit Risk ◽  
Credit Rating ◽  
Credit Ratings ◽  
Content Type ◽  
Rating Agencies ◽  
Credit Rating Agency ◽  
Rating Agency ◽  
Investment Grade ◽  
The Impact ◽  
Rating Downgrades

Purpose A credit rating, as a single indicator on one consistent scale, is designed as an objective and comparable measure within a credit rating agency (CRA). While research focuses mainly on the comparability of ratings between agencies, this paper additionally questions empirically how CRAs meet their promise of providing a consistent assessment of credit risk for issuers within and between market segments of the same agency. Design/methodology/approach Exhaustive and robust regression analyses are run to assess the impact of market sectors and rating agencies on credit ratings. The examinations consider the rating level, as well as rating downgrades as a further measure of empirical credit risk. Data stems from a large global sample of Bloomberg ratings from 11 market sectors for the period 2010-2018. Findings The analyses show differing effects of sectors and agencies on issuer ratings and downgrade probabilities. Empirical results on credit ratings and rating downgrades can then be attributed to investment grade and non-investment grade ratings. Originality/value The paper contributes to current finance research and practice by examining the credit rating differences between sectors and agencies and providing assistance to investors and other stakeholders, as well as researchers, how issuers’ sector and rating agency affiliations act as relative metrics.

Too little, too late? Role of credit rating agencies in the Amtek AUTO default

2017 ◽  
Vol 7 (4) ◽  
pp. 1-22
Author(s):  
Shagun Thukral ◽  
Sunder Korivi ◽  
Dipasha Sharma ◽  
Dipali Krishnakumar
Keyword(s):  
Financial Markets ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
Fixed Income ◽  
Red Flags ◽  
Content Type ◽  
Rating Agencies ◽  
Markets And Institutions ◽  
Analysis Process ◽  
Credit Analysis

Subject area Fixed Income markets, Financial Markets and Institutions. Study level/applicability This case can be used in a postgraduate finance course such as an MBA and executive program for courses such as Fixed Income Markets and Financial Markets and Institutions. Case overview In late August 2015, the sudden downgrade and eventual default of Amtek AUTO Ltd (Amtek) on its debentures upset mutual fund investors and regulators. Questions were raised about the credit rating agencies and their lack of timely action as well as about the independent credit analysis followed by fund houses to protect the interests of investors. One such investor, Suresh Nair, decided to gather all possible available information on Amtek to determine whether it was sheer negligence on the part of all parties involved or if Amtek was in fact in a situation of sudden distress. The case seeks to highlight the credit analysis process, while looking out for red flags to identify potential default or financial stress in a company. Expected learning outcomes To understand the credit analysis process through a fundamental analysis process. To analyze and interpret the financial position of the company through various financial ratios. Identifying “red flags” while evaluating a potential credit that pose as “risks” to credit assessment. Understanding the role and relevance of credit rating agencies in the bond market. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes. Subject code CSS 1: Accounting and Finance

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