Emerging markets downgrades outnumber promotions The developing world is suffering from more credit rating downgrades than promotions for the first time since the financial crisis, underscoring how the lustre of emerging economies has faded over the past year. Fitch Ratings has lifted its assessment of the creditworthiness of 10 developing countries in 2013, but has lowered it for 11 states. Last year there were only two downgrades and six upgrades. IN Emerging Markets The last time Fitch downgrades outnumbered upgrades was in 2008 and 2009, when the financial crisis spurred Fitch and other agencies to slash the ratings of a slew of countries, particularly in eastern Europe. The other major rating agencies have also started to trim their assessments of developing country creditworthiness this year, after a long period of mostly positive assessments. Moody's has given only five upgrades this year and handed out eight downgrades; compared with 12 promotions and 10 demotions in 2012. The credit rating cull is driven primarily by the deteriorating economic and fiscal fundamentals of many developing countries. The International Monetary Fund this autumn slashed its forecast for emerging market growth this year to just 4.5 per cent, down from the 6 per cent it predicted in April 2012. Many emerging economies now also have current account deficits, which means they are dependent on foreign capital to avoid the balance of payments crises that long plagued the developing world. "After a massive improvement emerging market creditworthiness peaked in 2007, but since then they've stagnated or deteriorated," said Bhanu Baweja, a senior strategist at UBS. Since 2004 Fitch has doled out 118 credit rating increases to developing countries, almost twice the number of demotions. Michael Riddell, a fund manager at M&G Investments, said rating agencies tended to react slowly to deteriorating fundamentals, but had this time actually been quicker to recognise warning signs than many investors. "A number of downgrades occurred at a time when investors were still euphoric about central bank stimulus and emerging markets," he said. Credit rating agencies are poised to hand out a flurry of further demotions in the coming year, as pessimistic reports outnumber positive ones by a wide margin. Fitch currently has twice as many negative outlooks on developing countries as positive ones. A fifth of all emerging markets rated by Moody's have a negative outlook and only a tenth have positive slants. However, Mr Riddell argued that rating agencies have still not fully factored in how exposed many developing countries are to the US Federal Reserve's plans to scale back its monetary stimulus programme. "We have seen the external vulnerabilities of the vast majority of EM countries being viciously exposed and I don't believe that these external vulnerabilities are being sufficiently factored in by the ratings agencies," Mr Riddell said, highlighting South Africa, India, Indonesia and Brazil as vulnerable to downgrades.