Moody’s cautions emerging markets

The report adds that capital-market investors are increasingly inclined to differentiate among the relative credit risks of individual nations across the emerging markets. "As a result, the recent phenomenon of risk contagion appears to have substantially subsided. Nevertheless, illiquidity remains adangerous element in the world economy. Increased creditor sensitivity means that nations laboring under very high debt burdens and dimmer export prospects are likely to continue to face difficulty in refinancing maturing debt in the capital markets," the report said, adding that several more sovereign payments crises over the short to intermediate term could be expected.

"Several new sources of risk have entered the credit environment for emerging market nations and include herd-instinct creditor behavior, overcapacity, disinflation, and the absence of a lender of last resort," Moody’s report said and added that the credit future of Latin America has the most potential for volatility since the refunding needs of Brazil, Argentina, and Mexico remain substantial. At the same time, there are also strong indications that the authorities in Latin America are aware of the difficulties and are prepared to act.

In East Asia, Moody’s believes the credit quality of economies has stabilised in most countries.