Sign in
Research link-chevron Created with Sketch.
link-chevron Created with Sketch. Products and Services link-chevron Created with Sketch.
link-chevron Created with Sketch. Products and Services
Economics link-chevron Created with Sketch.
FX Report
The Loop
Inside China
Insights & Strategy
Equities link-chevron Created with Sketch.
Corporate Commissioned Research
Analysts
Analysts
Help and Support
Help and Support
Corporate and Investment Bank
Standard Bank Group
The SA Daily 22 June 2018

Rising credit risk in emerging markets

Shireen Darmalingam

  • The cost of insuring exposure to South Africa’s debt via credit default swaps (CDS) has risen over the past few weeks as cautious and risk-off trade dominated markets.
  • SA’s 5yr USD CDS reached a one-year high of 220 bps points this week as the intensifying US-China trade battle shook up markets. A similar trend was noted for other emerging markets, with Brazil and Turkey’s 5yr USD CDS also rising to one-year highs of 280 bps and 325 bps respectively. Like SA, Brazil and Turkey too are rated “non-investment grade” sovereigns by S&P and Fitch.
  • Geopolitical risk and uncertainty will dictate the movement in SA’s CDS spread over the coming weeks. We could see credit risk rising futher, should fears of a full-blown trade war between the US and China run rampant. The Trump administration has already threatened to impose further tariffs on imports from China in order to dissuade Americans from Chinese goods. Retaliatory effects by China saw President Trump upping the stakes, adding yet further tariffs on Chinese goods. This is what caused SA’s CDS to scale 200 bps last week as investors fled for safe havens due to EM assets’ rising perceived risk.

Read PDF