Adversity is a great leveller. Just look at the way sovereign credit ratings in the developed and emerging world have been converging ever since the credit crisis erupted five years ago. JPMorgan has crunched a few numbers.
Few were surprised last week by S&P’s decision to cut the outlook on Britain’s AAA rating to negative. That gold-plated rating is becoming increasingly rare — according to JP Morgan, just 15 percent of global GDP now rates AAA with a stable outlook — a whopping comedown from 50 percent in 2007. Only 13 developed economies are now rated AAA, compared to 21 before the crisis. And only one, Australia, now has a higher rating (AAA) than in 2007 — 16 of its peers have suffered a total of 129 downgrades in this period. With 20 rich countries on negative outlook, more downgrades are likely.
Emerging sovereigns, on the other hand, have enjoyed 189 upgrades (43 percent of these were moves into investment grade). That has caused what JPM dubs “a traffic jam” in the triple B ratings area, with 20 percent of world GDP now rated at this level, compared to 8 percent in 2009.
To judge the scale of that re-rating, look at JP Morgan’s EMBI Global sovereign emerging debt index. The bank says 63 percent of the EMBIG now rates as investment grade — up from 2 percent in 1993 and around 40 percent in 2007. JPM writes:
The years 2011-2012 will be remembered for the deepening of the Eurozone crisis and a wave of sovereign ratings downgrades across the US, Europe and Japan…The gap between DM and EM sovereign ratings has narrowed, with a growing concentration of EM and DM in the triple-B rated bucket.