Professional investors continue to question the ratings agencies’ apparent dual standards for analysing creditworthiness for nations like the U.S. or U.K. versus Europe’s periphery.
Ratings agencies will say that major economies’ credit ratings vs the periphery is an apples vs. oranges comparison, but some pros feel they’re all similarly rotten:
Shahid Ikram, head of global sovereigns and absolute return at Aviva Investors, is unconvinced. He shares Risvas’ view there is a discrepancy in the application of downgrades, and that the UK’s triple-A rating is dubious given the severe fiscal problems it faces.
“People are looking at the peripheral economies, but you could have similar fears about Japan, the UK and the US. It’s a global phenomenon. Take the UK: look at its headline fiscal deficit, aggregate the fact that the public sector pension fund is off balance sheet, and that a lot of our recent capital investment from a government perspective has been done through private finance initiatives, and you see that we have a colossal problem. If I can see that, rating agencies should be able to see it as well,” says Ikram.
“The agencies clearly have to look at the UK and the US,” agrees Jamie Stuttard, head of European and UK fixed income at Schroders. “As the finances of the UK and the US deteriorate, those publishing labels of their creditworthiness need to act accordingly. What we see in these two countries are clearly deep, deep problems in both the financial and consumer sectors which have become public sector problems over the last two or three years.”
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