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Emerging markets show credit quality boost

The positive economic noises emanating from the emerging markets have been confirmed this week in a report by S&Ps which shows a second consecutive quarter of improvements in corporate upgrades.


Ratings actions for corporate downgrades accounted for only 30% of the total number while 2003 saw five more upgrades than downgrades ? 62 over 57. These figures produced a downgrade ratio of 48%. Not since 1996 has such a low ratio been seen - positive signs indeed.


Investor risk aversion, according to S&Ps, has been the main driving force behind improved confidence and figures.


"Improved credit worthiness has been among the factors contributing to increased demand for emerging market securities in 2003," said Diane Vazza, head of the fixed income research group at S&Ps. "Other helpful factors include a higher appetite for risk among investors in a record, low-interest rate environment in addition to country specific domestic drivers."


The EMEA region, despite economic and political ructions in Russia, is looked upon most favourably by S&P ? Romania and Bulgaria particularly so ? though a negative bias still remains in Latin America and Asia.


The good news for these regions, however, is that the bias has fallen substantially in 2003, notably in Latin America, with just 17% of issuers listed with a negative bias, compared to 42% at year-end 2002.

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