S&P: Emerging market sovereigns outlook positive

For the fifth year, emerging market sovereigns were upgraded more than they were downgraded despite disruptions in the money markets of industrialized nations, according to a report by Standard & Poor's.

The trend is expected to continue in the near term, as positive outlooks on ratings of emerging market sovereigns outnumber negative ones, S&P credit analyst John B. Chambers, chairman of the sovereign ratings committee, said in a written statement.

"This has also been a period of strong global growth, rising commodity prices, ample cross-border capital flows and low real interest rates," Chambers said. "Policymakers of most emerging market governments have taken advantage of this benign environment to improve their government's capacity to service debt during more difficult times."

From January 2003 to September 2007, 25 out of the 38 emerging market sovereigns have seen their foreign-currency ratings raised, S&P said. Only six remain at the same level and six are lower.

According to the report, the improving trends of emerging markets reflect improved fundamentals, with 27 having narrowed government fiscal deficits or posted surpluses. And 32 have trimmed their debt burden.

"If there is an Achilles' heel it is the banking systems of these emerging markets," Chambers added. Although bond spreads and credit default swap premiums have increased in the past two months, they have widened less than in the U.S. high-yield market and in previous periods of global market turmoil, S&P said.

The disruptions in the money markets might continue, Chamber said, but the spillover effects to emerging markets is expected to be contained, especially for Brazil, Chile, China, Malaysia, Morocco, Panama, Peru, Trinidad and Tobago and Uruguay, all of which have a positive outlook.

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