The bond market is telling Moody’s Investors Service and Standard & Poor’s that they’ve got it wrong in rating sovereign debt in Southeast Asia.
The cost of protecting notes sold by Indonesia, Thailand, Malaysia and the Philippines against default averages 98 basis points, CMA data show, compared with 270 for Italy and Spain. Debt stood at 51 percent of gross domestic product in the Philippines and 25 percent in Indonesia, both rated junk by S&P, compared with 126 percent in Italy, ranked three levels higher.
“The international agencies are wrong in their ratings of some of the Asean sovereigns,” Lee Kok Kwan, deputy chief executive officer of CIMB Group Holdings Bhd. (CIMB), Malaysia’s top bond arranger, said in a March 5 interview in Kuala Lumpur. “Market prices for the last three years have been so completely divorced from ratings.”
The credit-default swap market is anticipating upgrades for some of the largest economies among the 10-nation Association of Southeast Asian Nations, which the International Monetary Fund forecasts will expand 5.5 percent in 2013 compared with 0.2 percent shrinkage in the euro area. Ratings companies are losing their following among investors. Almost half the time, government bond yields fall when an action suggests they should climb, or they increase even as a change signals a decline, according to 38 years of data compiled by Bloomberg.
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