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FITCH  Featured Credit Research

Sovereigns
Sub-Saharan Sovereign Outlook Negative as Commodity Prices Weigh on Economic Prospects
Although Fitch expects additional stress to fiscal and external positions in SSA next year, SSA should remain one of the fastest growing regions of the world, with median GDP growth of 5% in 2016. This represents an improvement over 2015, albeit less than the average 5.7% the region saw in 2010-14.

GCC Hikes Show Peg Commitment; Oil Still Key for Growth
Interest-rate increases by the central banks of Saudi Arabia, Bahrain and Kuwait reflect their commitment to exchange rate pegs and are not the result of immediate market pressures. Higher policy rates will contribute to slower non-oil growth in the region, but their effect on economic activity will be minor compared with the dampening effect of lower oil prices.

Mounting Pressures Test Emerging Asia’s Resilience
Asia-Pacific economies face challenges to varying degrees from imminent Fed tightening, China’s slowdown, weaker commodity prices and still-lacklustre global trade growth. But coherent, credible policy management can buffer sovereign credit profiles against risks.

Emerging Europe’s Stable Outlook Reflects Strengthening Performance and Ongoing Challenges
EE will benefit from a stabilization in the Russian economy and stronger growth prospects in CEE in 2016, although political, policy and external challenges remain. Fitch expects the Russian economy to grow by 0.5% next year, after a contraction of 4% in 2015, easing pressure on CIS countries that have been hit by lower trade, investment and remittances from Russia.

South Africa MoF U-Turn Doesn’t Remove Policy Uncertainty
The replacement of a second finance minister in South Africa within five days has not enhanced confidence in government effectiveness and leaves questions over the direction of economic policy. In this context, February’s budget will be an important event in assessing the government’s commitment to prudent public finances.

Financial Institutions
CEE Bank Loan Quality Stabilizes but Progress Is Slow
The growth of impaired loans is declining at CEE banks but shifting these loans off-balance sheet is progressing slowly. Impaired loans/total loans were particularly high in Bulgaria (20%), Slovenia (17%), Romania and Hungary (both about 13%) at end-1H15.

In addition, Fitch published the following EMEA research last week:
Saudi Banking Outlook under Pressure from Tougher Operating Environment
Stable Outlook for CEE Banks in 2016

China’s Credit Bureau Important for Consumer Finance Development
China’s credit bureau system has expanded rapidly along with the economy to become the largest in the world, but it still has some way to go compared with credit bureaus in western countries. The development of the credit bureau system will facilitate further expansion of commercial and consumer credit in China.

In addition, Fitch published the following Asian research last week:
Rule Changes for Sri Lanka Insurers Promote Transparency

Mexican FX Banks Diversification Goal Amidst Fast Growth
Mexican FX banks exhibit low NPLs and consistent profitability metrics that support adequate capital ratios. However, significant reliance on a volatile business and faster-than-average growth lead to aggressive business profiles in this segment.

In addition, Fitch published the following Latam research last week:
Fitch Affirms Venezuelan Private-Sector Banks Following Peer Review

Corporates
Peruvian Corporates Outlook Remains Negative
Fitch expects negative rating actions for Peruvian companies to continue during the next 12 months. In 1H16, consumer and investor confidence could weaken further until the new president is elected and takes office in July. GDP growth is expected to moderate to 3.8% in 2016, which does not take into account the potential negative impact of a severe El Nino in 1H16.

In addition, Fitch published the following Latam Corporates research last week:
What Investors Want to Know: Brazil’s Water/Wastewater Developments and Hydrologic Crisis
Release Latin American Corporate 2016 Outlook Compendium
Latin American Chemicals Outlook Remains Stable
Latin American Retailers to see Poor But Stable Growth in 2016

China Growth Shock Would Hit Energy, Shipping, Steel Most
Energy, shipping and steel would be the hardest-hit sectors in APAC in the event of a sharp slowdown in Chinese growth. The Sector Outlooks for APAC steel and energy, and global shipping are Negative even under our current forecast expectations where China slows only gradually. Asian manufacturing and technology sectors would also be significantly affected, given the scale of Chinese demand.

Russian Utilities’ Sector Outlook Remains Negative
Fitch’s 2016 Sector Outlook for Russian utilities remains Negative due to weak fundamentals and high regulatory risk. We expect marginal demand growth in combination with overcapacity to continue putting pressure on power prices in 2016. Regulatory and political risks will probably persist against a background of sluggish growth.

In addition, Fitch published the following EMEA Corporates research last week:
EMEA Aerospace and Defence Buoyant on Higher Spending
Consolidation and Capacity Discipline Inevitable for EMEA Shipping and Airlines
Disparities among EMEA Airlines to Deepen in 2016

Asset Management
Another Turbulent Year Ahead for Brazilian Asset Managers
Recent regulatory changes, overall market volatility, low growth of AUM, and greater flexibility to invest abroad should keep Brazilian asset managers alert in the year ahead. The deterioration of investor’s expectations regarding the Brazilian economy will likely contribute to continued volatility over the short term.

Macro Credit Research
Fitch Scenario: Sharp China Slowdown Would Hit Global Growth Hard
A sharp slowdown in China’s GDP growth rate to 2.3% during 2016-2018 would disrupt global trade and hinder growth, with significant knock-on effects for EMs and global corporates. In turn, this would keep short-term interest rates and commodity prices lower for longer. This hypothetical scenario does not reflect Fitch’s current expectations, but is designed to test credit connections between China and the rest of the world.

International Public Finance
Russian LRGs Challenged by Heightened Economic and Budgetary Pressures
Russian LRG ratings will remain under pressure in 2016 due to negative debt metric dynamics and weaker fiscal performance. While negative rating actions should continue in 2016, some LRGs that are committed to narrowing their budget deficits, maintain reasonable debt levels and reduce refinancing risk could be revised to Stable.

In addition, Fitch published the following public finance research last week:
Robust Financial Management is Credit Strength in LRGs
Colombian Subnationals Outlook for 2016 Remains Stable

Additional Fitch Research
European Investors More Optimistic on Banks
EMEA Financials See Stabilising Issuance, Ratings in 2016
Jababeka’s Interest Cover Still Adequate Despite Debt Rise
Shareholder Change Won’t Have Rating Impact on Sino-Ocean Land
North America Sovereign Outlook Stable as Growth, Government Debt Ratios Steady

Featured BMI Research
Featured reports and commentary from BMI Research, a Fitch Group Company. In order to access these reports, you can register for free (to access executive summaries of reports and other select research) or become a subscriber. To learn more, visit the BMI Research website.

BMI on Global Economy:
Key Global Themes For 2016

BMI on Global Commodities:
Commodities: Key Themes For 2016

BMI on Chinese FX:
Yuan Crisis Risks Rising

Selected Rating Actions
Emerging Asia
Fitch Upgrades China Overseas Land to ‘A-‘; Outlook Stable

Emerging Europe
Fitch Revises Serbia’s Outlook to Positive; Affirms at ‘B+’
Fitch Revises Eastcomtrans’ Outlook to Negative; Affirms at ‘B’
Fitch Places KMG International on RWN on Proposed Ownership Change

Latin America & The Caribbean
Fitch Downgrades Brazil to ‘BB+’; Outlook Negative
Fitch Downgrades Various Brazilian Corporates; Affirms Others
Fitch Downgrades Petrobras’ IDRs to ‘BB+’; Outlook Negative
Fitch Downgrades QGOG Atlantic / Alaskan Rigs Ltd. Notes to ‘BB-‘; Outlook Negative
Fitch Downgrades Bradesco Seguros and Sul America following Sovereign Downgrade
Fitch Takes Actions on Financial Institutions Following Brazilian Sovereign Downgrade
Fitch Downgrades Embotelladora Andina’s IDRs to ‘BBB+’; Outlook Remains Stable
Fitch Downgrades Brazil Loan Trust I Notes to ‘BB+sf’; Outlook Remains Negative

Middle East & Africa
Fitch Upgrades Namibia’s National Rating to ‘AA+(zaf)’; Outlook Stable
Fitch Upgrades Fox Street 1 Class B and C; Affirms Others
Fitch Downgrades 2 South African Insurance Groups’ IFS Ratings

Recent Rating Actions
Asia-Pacific
Emerging EuropeLatin America & The Caribbean
Middle East & Africa 

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