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Credit Market Pulse: June 2014

July 1, 2014   //   By Silvina Aldeco Martinez, and Thomas Yagel

Editors Note

Welcome to the fourth issue of Credit Market Pulse, a bi-monthly snap shot of corporate credit risk conditions around the world leveraging both the analytical intelligence and credit data from S&P Capital IQ.

Given the importance, size and credit risk of the financial sector within the S&P 500 and other regional indices, Credit Market Pulse will now provide regular analysis of the Financials’ segments contrasting credit risk contributions across emerging and developed markets. This issue shows that the credit risk of the S&P 500 index currently remains very stable with an overall probability of default (PD) of 0.04%. Still, in the US, because of the size and vulnerability of this sector in terms of both the large number of constituents, debt and exposure to changing global economic and regulatory conditions, as of June 13, 2014 ‘Financials’ have taken over the lead from Telecommunications Services in greatest proportion of credit risk added to the index.

Interestingly, our analysis paints an encouraging picture for Financials in emerging markets. Findings in the MSCI Emerging Markets Index [MXEF] showed that this sector has fluctuated from an overall speculative grade of 0.83% PD (‘bb+’) in mid-2013, to a more moderate investment grade level of 0.53% PD (‘bbb-’) as of mid-2014.

In this issue, Credit Market Pulse also looks closely at the implied country risk in Asia through the lens of the credit risk aggregation of non-financial corporates head-quartered in Asia. A comparison between India and China found a surprising difference in credit risk of these two countries, particularly within the non-financials sectors. In India, credit risk is nearly twice as high as in China. Average credit scores during this period were 2.52% (b+) for India and 1.18% (bb) for China. Not surprisingly, their respective median PDs are slightly lower, with 2.19% (bb-) for India and 0.85% (bb+) for China.

Looking at Southeast Asia, Credit Market Pulse found that, not counting Singapore, the median PD for this region is 1.05% (bb). Further, Malaysia exhibits the lowest PD over the entire period and the Philippines reached the greatest.

The benchmarks, trends and individual company analyses examined in Credit Market Pulse are intended to provide financial professionals with a better understanding of the risks and opportunities underlying their investment or lending decisions, as well as how their portfolios perform against the market. At the core of Credit Market Pulse is S&P Capital IQ’s proprietary probability of default (PD) model, ‘Market Signals’, a unique analytical model which provides daily changing, one-year forward looking PDs of publicly listed companies based on a cutting-edge econometric framework. In addition, this model generates more than 37,000 company-specific PDs every day, covering 99.9% of global market capitalization across developed economies, frontier and emerging markets.

You can read the rest of the June 2014 Credit Market Pulse report by downloading the PDF.

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