The Fitch negative outlook

Investopedia: “A credit rating is a quantified assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. Ratings directly affect the interest rate that an organization must pay to buyers of its bonds and other debt.”

When Investopedia first started, I wrote many definitions for them and it is a valuable source of information. However, these are “textbook” descriptions in that “the facts” do not include negatives that should also form the complete definition. “Fitch Ratings is an international credit rating agency based out of New York City and London. Investors use the company’s ratings as a guide as to which investments will not default and subsequently yield a solid return.” You need to reach deeper for a better understanding of the topic.

The Nation: “Standard & Poor’s, the self-righteous credit-rating agency, provoked scary headlines by solemnly threatening to ‘short’ America. That is, downgrade the credit-worthiness of US Treasury bonds unless Congress and the president oblige creditors by punishing the citizenry with severe budget cuts. What a load of crap. News coverage on S&P’s credit warning typically failed to mention that Standard & Poor’s itself is in utter disrepute. It was an unindicted co-conspirator in the Wall Street deceitfulness that brought the nation to financial ruin.” See what I mean?

The excuse is often made that the big three rating agencies—S&P Global, Moody’s, and Fitch Ratings are basically reputable and credible. When there are “anomalies,” they are pinpointed to be only with corporations because “The companies, like Enron, lied to Moody’s.” That sort of ignores the idea that the credit rating agencies exist to catch the lies, but that is another matter. And there is, of course, the fact that “It came to light that during the lead-up to the 2008 crisis, rating agencies were bribed to provide falsely high bond ratings, thereby inflating their worth.”

However, the sovereign credit rating and outlook is a valuable tool for every “current administration” and “constructive opposition.” The credit rating is a great political propaganda force when the rating is going up or going down, respectively.

The rating itself is valuable to the lenders to a nation. Fitch has 16 different ratings from CCC+ to AAA. It would be easier if “CCC+” meant “These guys are like your brother-in-law and will never pay off,” but it does not work that way. It serves as a comparison tool between countries.

The Fitch rating for the Philippines of “BBB” means the Philippines will definitely pay all its debt obligations unless the “shit” really hits the fan (or the Spratly Islands as the case may be) big time. The Philippine rating puts the nation in the same group as Thailand, Mexico, Indonesia, Panama, and Uruguay as “Investment Grade.” Vietnam, on the other hand, is “Non-investment grade speculative” at “BB.” That does not mean that Vietnam is going to miss a payment or will default. It means that it would take “less shit” than the Philippines to cause Vietnam financial problems.

I hope all these financial terms are not too complicated and confusing.

Fitch uses 18 variables spread over “Structural Features,” “Macroeconomic performance, policies, and prospects,” “Public Finances,” and “External Finances.” I am sure that everyone commenting on the Philippines outlook downgrade to “Negative” from “Stable” found the seven-page report as interesting and informative as I did.

The details are always more important than the headline. We are cautioned against “A sustained rise in the government/debt to gross domestic product ratio, deterioration in foreign-currency reserves, and weaker medium-term macroeconomic prospects”.

But there is an interesting final note. “Key Assumptions: The global economy performs in line with Fitch’s June 2021 Global Economic Outlook.” A rising tide floats all boats. A tsunami sinks them all.

E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.

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