(In paragraph 12, corrects number of EM countries Fitch has on
negative outlook to 13, not 20)
By Karin Strohecker
LONDON May 24 A China credit rating downgrade
sent shivers through emerging markets on Wednesday, though
stocks later clawed back losses and hopes of an extension to an
OPEC crude supply deal supported the currencies of some oil
Credit agency Moody's lowered China's foreign currency and
long-term local credit rating by one notch to A1, citing slowing
growth and mounting debt in the world's second-largest economy.
The cut to China's credit rating - its first in nearly three
decades - initially rocked Asian markets, sending China mainland
benchmark stock indexes more than 1 percent
lower and weighing on the yuan.
But Chinese stocks ended the session broadly flat, while the
overall MSCI benchmark recovered to trade flat after
suffering losses earlier in the session.
JPMorgan's benchmark emerging market debt index
only ground marginally wider, with spreads over safe-haven U.S.
Treasuries edging out one basis point.
"The reaction has been pretty muted," said Kaan Nazli,
senior economist emerging market debt at Neuberger Berman,
noting that recent China data had already contributed to a
pullback on commodity focused emerging markets.
"The Chinese infrastructure programme was what helped push
metals prices higher in the first quarter of this year and the
last quarter of last year - there is an expectation that this
has run out of steam," he said.
Moody's downgrade of China is just the latest to affect big
emerging markets, with several recently having their outlooks or
South Africa's rating tumbled into junk in April, while a
graft scandal engulfing Brazilian President Michel Temer
prompted a number of agencies to warn of credit rating
implications. S&P revised its credit outlook to negative on
Investors were bracing for more to come, said Neuberger
"However, six months from now that could very well change,"
Fitch has made eight EM sovereign cuts this year and has
negative outlooks on 13, from Brazil and Mexico to Nigeria and
Zambia, while Moody's holds a negative outlook on some 25
On currency markets, oil exporters Russia and Kazakhstan saw
the rouble and tenge strengthen against the
dollar, supported by oil prices nudging higher on confidence
that OPEC-led output cut will be extended into early next year
at the group's meeting this week.
Despite the China downgrade hitting metals and copper prices
, South Africa's rand strengthened
0.5 percent to its firmest level in a month as data showed that
consumer inflation slowed more than expected.
The rand has strengthened for the fourth consecutive
session, also helped by media reports that ruling African
National Congress (ANC) would discuss removing President Jacob
Zuma at a weekend meeting. The ANC has rejected the reports.
For GRAPHIC on emerging market FX performance 2017, see tmsnrt.rs/2e7eoml
For GRAPHIC on MSCI emerging index performance 2017, see tmsnrt.rs/2dZbdP5
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see)
Emerging Markets Prices from Reuters
Equities Latest Net Chg % Chg % Chg
Emrg Mkt Indx 1003.57 -0.90 -0.09 +16.39
Czech Rep 1008.46 +0.55 +0.05 +9.42
Poland 2308.27 +0.43 +0.02 +18.50
Hungary 34487.48 -243.46 -0.70 +7.76
Romania 8552.23 +43.95 +0.52 +20.71
Greece 783.05 +0.02 +0.00 +21.66
Russia 1093.98 -2.85 -0.26 -5.06
South Africa 47852.45 -193.71 -0.40 +9.00
Turkey 98245.47 +527.99 +0.54 +25.73
China 3063.79 +1.84 +0.06 -1.28
India 30298.97 -66.28 -0.22 +13.79
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.49 26.43 -0.22 +1.97
Poland 4.20 4.20 +0.10 +4.91
Hungary 308.67 308.18 -0.16 +0.05
Romania 4.55 4.55 +0.02 -0.34
Serbia 122.82 122.81 -0.01 +0.43
Russia 56.31 56.34 +0.05 +8.80
Kazakhstan 310.98 311.58 +0.19 +7.29
Ukraine 26.25 26.28 +0.11 +2.86
South Africa 13.02 13.07 +0.39 +5.47
Kenya 103.20 103.20 +0.00 -0.80
Israel 3.59 3.59 -0.04 +7.21
Turkey 3.57 3.57 -0.01 -1.16
China 6.89 6.89 -0.03 +0.76
India 64.82 64.87 +0.08 +4.82
Brazil 3.27 3.27 +0.01 -0.50
Mexico 18.62 18.62 +0.04 +11.28
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 320 1 .05 7 84.00 1
All data taken from Reuters at 09:15 GMT.
Currency percent change calculated from the daily U.S.
close at 2130 GMT.
(Additional reporting by Marc Jones, editing by Ed Osmond)