Showing posts with label ECR. Show all posts
Showing posts with label ECR. Show all posts

Monday, May 21, 2018

21/5/18: Risk experts take flight over Italy's political risk


Euromoney and ECR are covering the story of Italian political risk, with my comments on the rise of populism in Italy and its effects on sovereign risk with respect to the Italian Government formation negotiations: https://www.euromoney.com/article/b187w50chyvhbl/risk-experts-take-flight-over-italys-political-shock


Monday, April 16, 2018

15/4/18: EuromoneyCountryRisk 1Q 2018 report


Euromoney Country Risk 1Q 2018 report (gated link) is out, quoting, amongst others, myself on geopolitical and macroeconomic headwinds to global economic growth:

Two interesting tables/charts:



My quote:

Friday, October 28, 2016

28/10/16: Rising Risk Profile for Italy


Euromoney Country Risk on Italian referendum and rising risks relating to Euro area's third largest economy:




Saturday, January 30, 2016

29/1/16: Estonia - A Safer Bet than France?


Euromoney have a good summary article on Baltic states’ economies and sovereign risk ratings (all of which are improving).

My comment toward the end.

http://www.euromoney.com/Article/3524950/Estonia-offers-safer-ption-than-France-or-South-Korea.html



Here is my take on Baltics ratings in full:

Given macroeconomic and geopolitical environment, Estonia's credit rating by all three rating agencies clearly lags overall trends in risks evolution. The geopolitical and external macroeconomic risks these ratings reflect are consistent with early 2015 assessments and are well behind the more recent trends. In simple terms, Estonia is over-due a one notch upgrade across all agencies, as reflective of expected re-acceleration in growth from 1.9 percent estimated in 2015 to 2.6 percent forecast for 2016-2017, and improving labour markets performance and inflation outlook.

Another key driver for the upgrade is significant abatement in geopolitical risks faced by Estonia in the context of the Russian-Ukrainian conflict that has evolved into a localised and frozen conflict with no expected spillover to the broader region.

Estonia also enjoys significant improvements in its terms of trade, via Euro devaluation, which is reflected in its relatively strong current account dynamics.

As far as Latvia and Lithuania ratings go, both countries' present ratings are in line with generally weaker economic, political and social institutions and with long term structural problems at play in both economies. While geopolitical risks have abated for these two countries since the start of 2015, supportive monetary and euro devaluation-driven competitiveness tailwinds are yet to manifest themselves in terms of current account balances and gains in real  productivity.

Unlike Estonia, both Latvia and Lithuania run current account deficits in presence of significantly higher unemployment and continued outflows of human capital. Of the two countries, Latvia is probably closer to a rating upgrade, which can come later in the first half of 2016.

Saturday, January 23, 2016

23/1/16: Poland's Sovereign Risk Troubles


With what appears to be a political-motivated downgrade by the S&P on January, from A to BBB+, with steady outlook, Poland’s sovereign and macro risks have been pushed to the top of news flow. Meanwhile, Moody’s rates Poland A2 (stable) and Fitch A. However, as noted by Euromoney country risk recent assessment, the sovereign risks turmoil that accelerated over the last few weeks has been building up for some time now.

Euromoney Country Risk (ECR) survey shows that by the end of 2015, Poland’s political risk score dropped to 20.06, “the lowest it has been since ECR launched an updated methodology in 2011”. More interestingly, “Poland’s political risk score has been declining – indicating increased risk – since 2011.”

Worse, per ECR: “the drop in Poland’s political score from 20.17 in September to 20.06 in December combined with a fall in its economic risk score from 19.38 to 19.27 over the same period, contributing to a decline in its overall score to 65.62 from 66.93. Poland, which enjoyed a ranking as the 29th safest country in the world in September, dropped four spots in rankings since the yearend survey.

Here is ECR’s summary of scores for Poland, including some recent moves:


It is interesting to see Poland significantly underperforming Slovakia:

Overall, given that both Slovakia and Hungary have, over recent years, adopted a series of reforms that severely undercut effectiveness of institutional checks and balances over the power of the executive, the reaction of ratings agencies and European authorities to Poland following the same route suggests growing concern and nervousness in Europe over all and any national experimentation with populist and/or non-conformist (to EU 'standards') policies.

Not being a fan of the current Polish leadership, I find myself in Poland's corner: in a democratic setting, it is people, not Eurocrats, who should decide on their future institutions.

Thursday, November 5, 2015

5/11/15: Euromoney on Irish Sovereign Risk Ratings


Euromoney Country Risk scores for Ireland have been improving significantly in recent months, while some ratings agencies' view of sovereign risks here remain lagging. Euromoney takes a look at the matter here: http://www.euromoney.com/Article/3503504/Category/14091/ChannelPage/8959/Country-risk-Why-Moodys-is-wrong-on-Ireland.html?LS=Twitter

Friday, December 5, 2014

5/12/2014: ECR on Russian Economy

Euromoney Country Risk on Russian economy under oil shock:

"Large oil producers, such as Russia, with undiversified economies and where political and other problematic factors prevail, are already seeing heightened risk that reflects their vulnerability.
Russia is facing a perfect storm of sanctions, falling oil prices and a currency in freefall since it was floated by the central bank to avoid further foreign-reserves depletion.
Its score has fallen sharply, taking the sovereign down 17 places and into the fourth of ECR’s five tiered categories equivalent to a B- to BB+ credit rating.
Russia has ample reserves, exceeding $400 billion, and the budget balance is cushioned somewhat from lower oil prices by the countervailing effect of the rouble’s slide.
Yet it seems inevitable now, with investment down, that Russia’s economy will contract in 2015.
Household disposable incomes will fall sharply as inflation and unemployment escalate, weighing on consumer spending. Rising dollar interest costs exacerbating debt rollover risks will burden the banks already managing depositor withdrawals."

A handy chart:

Friday, November 14, 2014

14/11/2014: Russia Risks Up, but No Panic, yet


Euromoney Country Risk published an interesting analysis of the country risk scores for Russia. Here are some of the highlights (link up once Euromoney produce undated note).


"As sanctions and falling oil prices force the rouble’s slide, country risk experts are questioning the ability of privately owned and/or state backed
banks and corporates to obtain credit and repay their debts amid capital flight and an economy in decline Russia’s country risk score has fallen precipitously this year, in tandem with Ukraine."

The beef is in the details: "An 8.3 point correction since 2013, to 46.2 points out of a maximum 100 available, has sent the sovereign careering 17 places down ECR’s global rankings to 71st out of 189 countries worldwide. That marks a lower score compared with 2008, indeed the lowest since Russia defaulted in 1998, with the sovereign slipping into the fourth of ECR’s five tiered groups commensurate with a B to BB+ credit rating, signalling its triple-B credit ratings are overdue a downgrade."



Per ECR: "Russia’s plight is understandable. Oil prices have come off their peak since June, falling more than $30 per barrel to $81, as of Thursday."

You bet. Here's the updated chart:



As I noted before, oil price leads Ruble, not the other way around. And also note volatility in recent days - as predicted here: http://trueeconomics.blogspot.ie/2014/11/7112014-russian-ruble-rough-days-ahead.html

Back to ECR analysis: "With sanctions causing an estimated $130 billion of capital outflow this year, according to the central bank, the rouble has plunged to $46/$, depreciating by 42% since the end of 2013 and forcing an abandonment of its target corridor in favour of a (virtual) free float absorbing the shock and preventing forex decline."

The point worth mentioning here is that capital outflows recorded are official flows, which include:

  1. Repayment of maturing debts by Russian banks and corporates (which is now becoming a serious issue, given the state of debt markets in the wake of the sanctions); and
  2. Forex positions taken by households and corporates, even when deposits are held inside the country.
  3. In addition, capital outflows reflect exits by financial investment funds, which are not having a direct impact on the economy in the short run, but can have adverse impact on corporate funding and investment forward over the longer term.

For the repayments schedule, see here: http://trueeconomics.blogspot.ie/2014/11/11112014-another-wild-ride-for.html

Experts opinion

"Russia’s FX reserves totalled $429 billion as of end-October, down from $524 billion the year before. The true total is a little lower due to adjustments for the reduced valuation of gold reserves and changes in official agency reserves."

Note, I wrote about the latest foreign reserves position figures here: http://trueeconomics.blogspot.ie/2014/11/11112014-another-wild-ride-for.html these stood at USD416.23 billion at the end of October, excluding IMF-held funds, SDRs, and covering only gold and foreign exchange.

Danske Bank analysts "believe the $50 billion FX repo facility is “reasonable
enough to cover the most urgent needs of Russian corporations regarding their external debt repayments” through to 2016. Some banks, after all, have surplus liquidity that can be redistributed to those in need, and the central bank’s forex stockpile is sufficient to imbue some confidence in averting a crisis."

Kaan Nazli, senior economist at Neuberger Berman "expects a turnaround next year “due to the currency devaluation effect, and as private sector debts are
paid down with refinancing options limited by the sanctions.”

My own comment quoted in ECR note is as follows: I do "not believe a sovereign or even selective (large scale) private sector defaults are likely in the short term in spite of some talk of difficulties. “Such an event is not in the interest of the Russian authorities and can be prevented by using the existent foreign exchange reserves cushion,” he says. However, if oil prices remain low for a prolonged period and, simultaneously, Russian companies’ and banks’ access to foreign funding is severely curtailed, “we are likely to see a significant uplift in sovereign and banks’ credit risk”, he adds."


My 'wider angle' view to add to the above comment is as follows:

In my opinion, Russian Ruble dynamics vis-a-vis the USD and EUR are underlining the overall structural and geopolitical pressures on the Russian economy.

Amongst the structural factors, the largest weight can be assigned to the developing risks to economic growth, that have been at play since H2 2012 and H1 2013.

However, additional pressures are now being presented by the geopolitical factors, namely the crisis in Ukraine and the related sanctions on Russian companies and banks, including the indirect effects of these sanctions.

Decline in the oil prices - triggered in part by the sluggish global demand, and in part by the geopolitical decisions of the Gulf countries to withdraw supply-side support for oil - a having a significant short term impact on Russian exports revenues and are driving down Ruble valuations. Financial sector sanctions have de facto cut off all Russian companies and banks (including those not explicitly covered by sanctions) from the largest foreign funding markets, triggering high outflows of capital (as Russian companies pay down their maturing foreign currency loans exposures instead of rolling them over). As the result, Russian international reserves have been depleted from USD524.3 billion at the end of October 2013 to USD428.6 billion at the end of October 2014 (although one must take into the account reductions in this figure due to lower valuation of gold reserves and changes in official agencies reserves).

Going forward, changes in the inflationary environment, global and Russian economies dynamics, as well as continued demand for corporate and banks' deleveraging from foreign debt exposures, we can expect more downward momentum in the Ruble valuations and more pressure on the Government fiscal position.

However, devaluation of the Ruble and decline in oil prices do not have a linear one-to-one effect on sustainability of Federal fiscal balance sheet, as Government expenditure is denominate in Rubles, not US dollars or Euro. Furthermore, decline in oil prices is also not translating in one-for-one decline in Russian external balances, as Russian economy is capable of very quick and deep correction in imports demands, as 2009 experience clearly indicates.

As the result, in the short- and medium-term (up to 18-24 months), I do not foresee a significant acceleration in the risk of either a Federal or selective (large scale) private sector defaults. However, if WTI price stays for a prolonged period of time (2+ years) below USD95/barrel and, simultaneously, Russian companies' and banks' access to foreign funding remain severely curtailed, we are likely to see a significant uplift in sovereign and banks' credit risk.

Risk of selective (bank of corporate) default event is harder to asses than sovereign risks, but I do not expect - at this point in time - a large-scale event involving any big Russian corporates. Such an event is not in the interest of the Russian authorities and can be prevented by using the existent foreign exchange reserves cushion. The material risk here is that a number of larger Russian banks and companies, impacted severely by the sanctions, are likely to see dilution of the current shareholdings of foreign and domestic investors, as any liquidity support from the Government will likely see issuance of new equity to the state.

Thursday, October 23, 2014

23/10/2014: Euromoney Country Risk survey results Q3 2014


Euromoney Country Risk survey for Q3 2014 is out:
http://www.euromoney.com/Article/3392195/Euromoney-Country-Risk-survey-results-Q3-2014-Looming-China-crisis-adds-to-eurozone-and-emerging.html

Euro area risks are down, but starting to regain upward momentum in recent weeks. Meanwhile, BRICS are struggling, Russia risks deteriorating and overall global environment is not encouraging.

Sunday, September 28, 2014

28/9/2014: Political Risks and MENA Equities Valuations


A quick and accessible writeup on our (still work-in-progress) paper on "Political Risks and Financial Markets: MENA perspective" that uses data from Euromoney Country Risk surveys: http://blog.learnsignal.com/2014/09/26/political-risk-financial-markets/


Saturday, August 9, 2014

9/8/2014: Europe's bank risks back under the spotlight: ECR


Euromoney Country Risk report this week is covering rising risks in the European banking systems, with a brief comment from myself:


And unloved European banks chart, showing risk scores (higher score, lower risk):


Saturday, June 28, 2014

28/6/2014: Is S&P Behind the Curve on Portugal and Spain?


Euromoney Country Risk report is profiling S&P ratings on Portugal and Spain, with a comment from myself: here.

If you can't access the article, here is the article (click on each image to enlarge):






Tuesday, June 24, 2014

24/6/2014: ECR Ukraine Risk Assessment


Ukraine keeps diving deeper and deeper into the economic crisis territory (via ECR):

So per above, the country is now in the lowest ranking tier in terms of risks. And it is significantly underperforming its peers:

Risks scores composition is abysmal on Political and Economic Assessments (none have much to do directly with the external threats and all are already pricing in any positives from the latest Presidential elections):