Monday, July 18, 2011

Brown Brothers Harriman - New rating cuts coming in Europe

Ratings agencies have great influence on the markets. On the one hand, Moody's and Standard & Poor's shook traders when last week they’ve warned about the potential US downgrade coming unless the debt ceiling is lifted up. On the other hand, such actions may hurry the nation’s authorities to reach compromise before the time runs out.

Strategists at Brown Brothers Harriman note that the agencies have missed their chance in the Asian crisis and during the boom of the dot coms, so they are probably trying to overcompensate that now.

Analysts at BMO Capital think, however, that rating agencies play a very important role in Europe. In their view, as the European Bank Authority released on Friday the results of stress test that turned out to be better than expected but very likely inadequate, only the rating agencies can provide insight in the more realistic picture.

Anyway, BBH specialists note that there will be further downgrades of Spain, Italy, Portugal and Ireland. Emerging markets, on the contrary, have solid chances for upgrades. The bank proposes investors to use this forecast while developing trading strategists in order to act ahead of the rating agencies.

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