Global Investing

Polish central bank governor Marek Belka doesn’t apportion a lot of importance to the fact that Poland can boast the second biggest improvement in the latest World Bank’s ease of doing business index, after Kosovo.

“This year we have improved, but I don’t care too much about it,”  Belka said at a meeting in London today.

Others do see a significant trend emerging from the data around Poland which paints an optimistic picture for those wishing to start and do business in Europe, but not necessarily in the developed markets.

As Charles Robertson, economist at Renaissance Capital, says in a note:

Emerging Europe has done the most to improve its rankings. Poland jumped 19 places, Ukraine rose 15 places, Mongolia increased 12, … Kazakhstan was up 7 places, Russia 6. Latin America has fallen back.

Armenia is on Poland’s heels as the world’s third most impressive upward mover, reaching 32nd place from last year’s 50th.

Watchers of ratings agencies might be wondering if a golden period of steady credit upgrades for emerging economies is coming to an end. This week brought a ratings downgrade for Egypt and an outlook cut for Turkey. Hungary is teetering on the brink of having its rating cut to junk. Across the emerging world, countries are struggling with weaker growth, still-high inflation and falling investment. Debt ratios are rising.  All this could bode ill for sovereign credit ratings.

But no fear. The so-called ratings convergence between developed and developing economies has some way to go yet.  Egypt and Turkey may have received bad news this week but there were ratings upgrades for Kazakhstan and Georgia. Emerging countries are still more likely to be upgraded than downgraded. Debt-ridden rich nations on the other hand face ratings cuts, including possibly the mighty United States.  JPMorgan points out that, emerging markets have enjoyed 35 upgrades this year, while developed sovereigns have suffered 32 downgrades and no upgrades.  The bank predicts an additional 22 upgrades for the developing world in 2012.

“The convergence trend appears likely to continue, since a total of nine developed market countries remain on negative outlook or review for a possible downgrade,” according to JPMorgan. Emerging economies have received 133 sovereign upgrades since 2008, the bank notes.  The last developed country upgrade that still stands?  Sweden’s move up to AAA — achieved in 2004.

Now that markets appear to have decided that a $1 trillion stabilisation package from the European Union is enough to soothe global nerves and ward off a sovereign debt crisis, emerging market sovereigns and corporates may start to issue bonds again.

Emerging market debt issuance was heading for a bumper year — at more than $100 billion issued so far — before investors started to fear an imminent default by Greece and markets froze up.  

But a return this week in emerging sovereign debt spreads below the psychologically key threshold of 300 basis points over U.S. Treasuries is likely to encourage issuers back again.