12/7/2013: Euromoney Country Risk: Q2 2013 update

Euromoney Country Risk Survey Q2 2013 update is out today, showing continued divergence in risk perceptions about Brics and Europe (rising risks) and North America and Latin America (falling risks):

Largest risk increases are:

One area of interest from my personal perspective: Russia:

"With one or two exceptions, the majority of former Soviet independent states, alongside Russia, have become riskier this year, continuing longer-term trends.

Diminishing economic growth is imparting a negative impact on the region, especially in light of the slowdown in Russia (Russia: Stagnant oil price dampens economic outlook).

However, the risks are also tied to worsening perceptions concerning other indicators, and for a variety of reasons, ranging from Russia’s institutional underpinnings and corruption record, and government stability in Azerbaijan, to currency and information access/transparency concerns in Ukraine and Georgia’s regulatory and policy environment.

The Kyrgyz Republic and Moldova – the latter especially – have seen their political risk profiles downgraded sharply, highlighting the region’s flaws, its failure to capitalize on the eurozone’s worse risk-return opportunities, and why Russia, ranking 62nd globally, is still the only country to score more than 50 out of 100."

I gave a comment on Russian scores changes:

My full view is as follows:

In my view, increased risks associated with the Russian economy relate to the lack of structural drivers for growth, lagging reforms and low returns on reforms already enacted, plus the overall downward revision of the emerging markets and commodities in the environment of highly uncertain and subdued global growth.

Russian Government drive toward modernisation of the economy has dramatically slowed down and is no longer appearing to be a long-term priority for policy development. At the same time, investment in the economy has fallen off the cliff due to a combination of exhaustion of construction investment, Cyprus crisis, continued low FDI and reduced overall economic growth, as well as the perception that tax increases are likely in the near future. Looming ruble devaluation is reducing both FDI and internal investment.

Institutional capital is lagging and remains largely un-effected by reforms rhetoric. If anything, last 24-30 months have seen sustained deterioration in reforms efforts. The comprehensive agenda for modernisation of the economy has been pretty much frozen, if not abandoned.

On the longer-term horizon, emergence of alternative energy supplies and shale gas reserves development worldwide is starting to feed through to the forecasts for future current account and earnings capacity of the Russian economy.

However, there is a negative bias built into markets analysts expectations and assessments of the Russian economy, compared to other BRICS. Brazil and India have largely unsustainable models of longer-term growth driven by internal investment dynamics, instead of institutional capital build up, China is a massive credit bubble ready to blow with current account surpluses acting as the only potential buffer, given already extensive expansion of credit and money supply undertaken, and South Africa is hardly a sustainable, or significant in global terms, economy by any measure. In my opinion, Russia's economic future is highly uncertain. But of all BRICS - Russia has the best potential for stable and sustainable growth based on intrinsic workforce and domestic investment and demand potentials. Whether it will realise these potentials is a different matter.

10/7/2013: France credit score continues to slide

Per Euromoney Country Risk Survey, France score continued to decline in Q2 2013 falling to 71.9 from 72.3 in Q1 2013, despite tighter CDS. France now ranks as the second worst performer in the euro area after Slovenia.

France's score is well behind AAA-rated Germany and is 0.7 points behind the G8 average. The core drivers for recent downgrades are:

• Deteriorating Government finances;
• Poor employment outlook; and
• Increased transfer risk

25/6/2013: ECR Latest scores

Euromoney Country Risk scores, latest changes (higher score implies lower risk):


UP:
Luxembourg score 87.21 up by (+0.22)
Canada score 82.47 up by (+0.12)
US score 75.53 up by (+0.10)
Chile score 75.18 up by (+0.06)
Belgium score 71.69 up by (+0.03)


DOWN:
Greece score 34.08 down by (-0.01)
Spain score 53.60 down by (-0.01)
Finland score 84.39 down by (-0.03)
Italy score 55.26 down by (-0.03)
Portugal score 50.81 down by (-0.03)
UK score 72.53 down by (-0.03)

Australia score 81.53 down by (-0.04)
Japan score 68.02 down by (-0.04)
India score 52.47 down by (-0.05)
Austria score 79.77 down by (-0.06)
Netherlands score 81.51 down by (-0.06)
Sweden score 86.55 down by (-0.07)

China score 59.49 down by (-0.10)
France score 71.93 down by (-0.10)
Malta score 66.30 down by (-0.21)
Brazil score 59.81 down by (-0.27)

16/6/2013: Euromoney Country Risk Scores Update

Some updates from Euromoney Country Risk (ECR) reports. First a summary of latest credit risk assessment scores moves:

And on foot of Russia's score move, a related story on Russian government delaying issuance of much expected sovereign bond. Via Euroweek:


"Russia is likely to wait until autumn before bringing its mandated sovereign bond, said analysts. Forcing through a $7bn bond in one deal might also be unwise, but demand is deep and the sovereign could spread its funding plan out across separate transactions, said bankers... Investors have already priced in a large sovereign issue and Russia would not struggle to drum up demand, he added. But the problem is price."Everything is 100bp wider than a month ago and so the sovereign will hope things calm down and allow them to issue closer to the historic tights they were looking at just a few weeks ago," said another syndicate banker."

8/6/2013: Euromoney Credit Risk summary for Ireland

Latest results for Euromoney Country Risk survey for Ireland:

27/4/2013: ECR latest league table for ECE

Handy sovereign risk summary via ECR for Eastern and Central Europe. Note changes over time:

Interestingly, Cyprus - default event took place - is still ranked higher than a number of non-default states. Another interesting bit: Latvia, Hungary, Romania are ranked in 4th tier - low quality sovereign risks, all are EU countries, while Croatia is barely above Cyprus and Bulgaria is below - one is accession state another is the member of the EU. For much talk about 'heterogeneity' not being a problem, with differences between the US states evoked often to support this proposition, I doubt there is such a divergence between individual states in any function federal or near-federal structure anywhere... not even in Italy or Spain...

15/3/2013: Irish banks - still the second sickest of the sick euro area banking sector

In anticipation of the today's release (16:00 GMT) by the IMF of the 2013 Financial System Stability Assessment Report for European Union, Euromoney Country Risk analysts have published an interesting article Country Risk: Five years on, banks still inflict chronic pain on eurozone. Here are some of the very insightful charts - including an update on the previously covered banks stability scores (see here for January 2013 post and here for Q3 2012 data).

Let's start with the aforementioned chart on banks stability scores:

Pretty poor showing here for Ireland. Unlike the rest of the economy, we clearly have not 'decoupled' from the peripherals in terms of banking sector health and that is given:

1. Unprecedented and incomparable by the rest of the EZ standards levels of support for banks in Ireland;
2. Lack of any progress on mortgages crisis; and
3. Longer duration of the banking crisis in Ireland than in any other peripheral state.

We had the second weakest banking sector in the EZ throughout 2011-2012 and we still do. So much for the theory that Irish banks are 'lending into the economy' or 'have been repaired' and so much real support for the body of economic knowledge that says the deeper the debt overhang crisis, the longer and the deeper the required deleveraging crisis...

Now, something that shows that despite the consensus in Ireland and in the bonds markets, we are not quite due an upgrade as risks are still favouring continuation of the banking crisis (note, my view is that we are due an upgrade, but a single notch one, to reflect economic decoupling from the peripherals):

And the sovereign-banks links? Well, they are still there and still nasty for Ireland:

And here are few sobering words from the ECR:

"While some observers might still be convinced the worst of the banking crisis is over, the [Euromoney’s Country Risk] survey provides compelling evidence that bank stability risks are as concerning, if not worse now, for many European countries than at the beginning of last year, according to its contributing experts. More than five years on from the catastrophic events of 2007/08, the resolution of the region’s banking sector problems is still firmly at the top of policymakers’ to-do list, but with plans seemingly stalling, the implications of failing to act could prove critical."

Just in case you are in the 'green jersey' 'we've-turned-the-corner' camp, here's ECR quote putting Irish gains in the above scores into perspective:

"Across the eurozone, bank stability risks were unchanged last year in four countries – Austria, Belgium, Cyprus and Slovakia; with Cyprus the lowest of the group – and improved in four more: Malta, Italy, Ireland and Portugal. However, for the latter three, the rebounds were small and their scores remained at low levels of 5.5, 4.3 and 3.3 out of 10 respectively, illustrating heightened levels of risk."

So how bad are things in the euro periphery and in Ireland? Well:  "And the banks are just as problematic across the periphery. Taken as a whole, the seven riskiest eurozone countries (Greece, Portugal, Spain, Ireland, Italy, Cyprus and Slovenia) had an average bank stability score below that of most other regions, worse even than Mena or Latin America – see chart (below)." Keep in mind, that is for the average and Ireland is way worse than the average.

So next time you see Irish 'banks' adds claiming they are 'open for business' and 'doing our bit to help the economy' etc, just check these charts once again. They are, by all international comparatives, graveyard zombies, still holding this island at ransom.

9/3/2013: Slight improvement in Irish credit risk score

Small and in-line with other countries improvement in Irish Sovereign and Economic risk score from Euromoney Country Risk: