OREANDA-NEWS.  Fitch Ratings says in a new report that overall rating outlooks are increasingly stable; however, emerging market (EM) credit fundamentals may come under pressure from the prospect of US rate rises and declining commodity prices. In its bi-annual global Credit Outlook, the agency says the sovereign sector sets the tone, with the post-crisis trend of rating outlooks for EMs being more positive than for developed markets (DMs) ending in 2Q14. In other sectors, this turning point was reached in subsequent quarters, most recently in financial institutions (FI) when sovereign-support related downgrades stabilised DM ratings in May 2015.

The first possible US interest rate rise in more than a decade later this year has the potential to disrupt markets, even if only temporarily. Other major central banks remain in extreme easing mode and this monetary policy divergence is set to cause strains for EM borrowers, as capital flows back to the US. Many EM sovereigns already face lower commodity prices and a continued weakness in global trade. Fitch's economic growth projections for 2015 for the largest EMs span a wide range: Russia -3.5%, Brazil -1.5% and China 6.8% (gradually slowing).

Fitch expects refinancing and foreign-exchange risk to be greatest for corporates in Russia, central and eastern Europe, Latin America and Indonesia. The less-developed capital markets in these countries lead companies to assume unhedged FX risk and short-term debt. For financial institutions, Turkey stands out with high levels of US dollar-denominated debt.

In the eurozone, we expect growth to strengthen to 1.6% in 2015 from 0.9% in 2014, although unemployment will remain high and Greece will remain a tail risk. Companies are cautious about committing to capital investment. The spectre of deflation is fading due to better-than-expected growth. In structured finance (SF), increasing rating stability reflects improving residential mortgage asset performance and lower consumer delinquencies.

Sustained low oil and other commodity prices could lead to further negative rating actions affecting major sovereign exporters with weaker credit fundamentals or slow policy responses to the more difficult economic environment. Countries affected include Brazil and the Middle East and north African oil exporters. Oil-producing US states and local and regional governments elsewhere are also affected. Corporates in the oil and gas sector face downgrade pressures, and are reducing capex and dividends to protect credit profiles.

However, the low oil price is mainly positive for SF, boosting consumer affordability and spending as ratings are focused on economies not highly dependent on oil exports. The low oil price also supports demand for transportation in the infrastructure and project-finance segment.

Our six-monthly credit outlook report provides an overview of Fitch's outlook across all rated sectors and regions, identifying the main macro factors that will drive credit trends over the next 12-24 months. It is available at www.fitchratings.com or by clicking the link above.