The Market Monitor Minding the Nation's Business
Stock investors are taking caution amid indications of a likely decision of the US Federal Reserve (the Fed) to raise interest rates amid a steadying US economy.
The local stock index closed slightly lower last Friday as investors remained wary ahead of the release of the United States’ jobs data.
Credit watchdog Fitch Ratings said emerging markets (EMs) are becoming an increasing source of risk to global growth as the collapse in commodity prices and political shocks exacerbate a secular slowdown.
Our latest forecast for global growth of 2.3% in 2015 is the weakest since the global financial crisis in 2009.
Against this backdrop, the Fed’s looming tightening of monetary policy after an unprecedented period of historically low rates will add to the macroeconomic and external financing pressures on Ems, Fitch Ratings said in a report.
The Philippine Stock Exchange index (PSEi) last Friday lost 4.25 points to 7,118.20 from prior session’s 7,122.45 finish.
Local brokerage firm RCBC Securities said the market slump reflected Wall Street’s caution ahead of the release of payrolls data Friday night.
”(The jobs data) is believed to be critical to the US Fed’s decision whether to raise interest rates or not in December,” it said.
EM bonds were boosted in the last decade by international investors’ search for yield and increased funding disintermediation in local debt markets, Fitch Ratings said.
“This makes EM borrowers vulnerable to rising US rates and the reversal of previously strong capital flows. Fitch reviewed 19 EM countries, selected based on their weights in the J.P. Morgan EMBI and Cembi indices, to identify cross-sector sensitivities to rising US rates,” it added.
All but one are rated investment grade but almost one-third are on the edge at “BBB-“, it said.
Rating agency Moody’s also warned that a slowdown in global growth linked to China and a rise in US interest rates are two key reasons why it could lower its credit grades for countries next year.
Though the agency’s overall view is that a “shallow” economic recovery around the world should help shore up the ratings it assigns to countries, it said there’s potential for some downgrades in 2016 and that risks are “tilted to the downside.”
In a wide-ranging report, the agency cautioned that a rate hike by the Fed, which would be its first in more than nine years, could hit emerging market countries. Investors have used low interest rates in the U.S. to borrow money to invest in higher-growth, riskier economies around the world.
Moody’s said higher U.S. interest rates will create more uncertainty for countries like Turkey, Tunisia, Venezuela and Argentina, that have in recent years benefited from foreign investment. It does not, however, forecast a crisis in emerging markets.
The agency also warned that a sharp slowdown in China would have “broad implications and negatively affect trading partners and economies that are highly dependent on commodity exports.”
China has been the main locomotive of the world economy over the past few years but its growth is now coming off the boil. Though its economy is still expected to grow about 6-7 percent range in the coming year, that is much slow than in the previous few years.
Jitters over China’s economy have become more acute this year, notably in August, when global stock markets suffered one of their biggest routs since the dark days of 2008 and 2009.
Since China has been a voracious consumer of energy and raw materials, its slowdown has helped push down oil and commodity prices, hurting the countries that produce such goods.
“Lower growth, and the related fall in commodities prices, damages sovereign fundamentals,” Moody’s said.
Though the agency said most countries are “resilient” to lower growth, it noted “vulnerabilities.” Moody’s said less diversified and generally smaller, open economies, such as Mongolia, Bahrain, Oman and Ghana, are most vulnerable.