South Korea’s ratings upgrades predicted by ECR’s experts

Increased confidence in South Korea should come as no surprise to regular ECR followers. The credit ratings upgrades by Moody’s in late August (Moody’s upgrades Korea to Aa3) and Fitch last week (Fitch raises South Korea to AA-) might have bolstered the value of the currency, the won, but were expected based on movements in the sovereign’s ECR score. Regular followers will have noted our reviews in July and early August in which we highlighted the four-place jump in Korea’s global ranking, to 24th, since the beginning of this year. South Korea’s score has fallen slightly to 68.7 since Q2 2012 (a 0.8 point drop) but the factors involved – bank stability and the economic-GNP outlook – are in line with the wider trend. The scores for monetary policy/currency stability and for government finances have, by contrast, improved. The latter was justified in Asiaweek (Central banks to continue investing in Korean govt debt), which stated that: “Analysts believe that foreign investors will continue to plough their investments into Asia’s most developed bond markets, especially [South] Korea, in hopes of receiving higher returns.” Scores for all of South Korea’s structural factors have improved since Q2 2012, along with two political factors: the regulatory and policy environment; and information access/transparency. Moreover, it will not have been ignored either that the sovereign has climbed 14 places in ECR’s global rankings since 2007, taking it to within a whisker of the Czech Republic and Slovakia, occupying 22nd and 23rd places respectively.

This article was originally published in Euromoney Country Risk.