Brazil downgrade, signals caution for other EM – BBH
By FXStreet FXStreet (Delhi) – Research Team at BBH, note that the recent downgrade of Brazil by S&P is likely to send a strong signal amongst major emerging markets and investment grade countries that the agencies won’t hesitate to cut investment grade countries
Key Quotes
“To state the obvious, we thus see continued downgrades beyond what S&P has done. Some funds have mandates whereby they are allowed to invest in certain countries as long as two of the three major agencies have an investment grade rating. As such, we see forced selling ahead when one of the other agencies pulls the trigger and cuts Brazil below investment grade too.”
“With regards to equities, the growth outlook is so poor that Brazil is likely to continue underperforming too. On the FX side, BRL faces a perfect storm of negative external (Fed, China) and internal developments. That is unlikely to change anytime soon, and so we look for continued BRL underperformance.”
“Lastly, the Brazil downgrade also sends a strong signal that the agencies won’t hesitate to cut investment grade countries. Some of the rating agencies have been warning recently of downgrade risks to South Africa and Turkey, both of which are currently investment grade.”
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Source:: FX Street
