UK, China, South Africa downgrade calls loom for Moody's

Moody's is likely to make key rating calls on Britain, China and South Africa among others this year as rising political risk and debt levels push the number of countries on a downgrade warning back to a record high. From Europe's Brexit strains and looming elections to the battles of China, South Africa and Brazil to re-orientate their economies, not to mention Donald Trump's first months as US president, the rating agency faces a daunting list of decisions.
"A quarter of the sovereigns are on a negative outlook, which is the highest proportion we've had since 2012," the peak of the euro crisis, Alastair Wilson, Moody's managing director of sovereign risk told Reuters in an interview. The immediate pressure may not be quite so "acute" but the geographic spread of the negative ratings is now much wider, he said, adding: "I think in some ways (that) is more concerning."
Top names on the watch list include Britain, which Moody's rates a notch below triple-A at Aa1 and euro zone heavyweight Baa2 Italy as well as Aa3 China, Baa2 South Africa, A3 Mexico and Ba2 Brazil. Moody's is due to review the UK on June 2 and then on September 22. By then formal EU divorce proceedings should have started and Wilson said the "mood music" of the talks should be enough to decide whether to strip London of its Aa1 rating.
"Brexit is negative for the UK from a credit perspective, the question is how negative. We will only start to learn that over the next few months or year as the negotiations really pick up steam," he said.
For Baa2 negative Italy, steps over the last couple of weeks to tackle its banking problems could be positive, though it may not be if more than the 20 billion euros set aside is needed. Political uncertainty in Italy, including a constitutional court decision later this month and the potential for fresh elections in which the populist Five Star party could perform well, pose the other main risk.
China is another concern. It has been on a negative outlook since last March as it grapples with over-indebted state firms and over-heated big city property prices and heads towards a twice-a-decade leadership reshuffle this year. South Africa is a key decision too. Moody's rates it one notch higher at Baa2 than S&P and Fitch, which have it on the last rung of 'investment grade'.