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Golden Era Ending for Rising Markets

A decade of upgrading in emerging market credit ratings is impending to an end as higher sponging costs and commodity price falls intimidate to lay bare many countries' breakdown to transformation during the good times. Between 2007 and 2012 emerging economies brought in roughly 200 rating upgrades from the three main agencies, almost half of them promotions to the top 'investment grade' category. Given the weight investors still assign to credit ratings, that was a enormous driver for much of the $8 trillion or so that has streamed to emerging stock and bond markets since 2004. But this week has carried corroboration of two things, both with profound implications for the rising world. First, U.S. money-printing won't last perpetually and may end in 2014. Second, China's economy is indeed cooling, and swift. These reasons made recent year’s good ones for promising markets. Rock-bottom U.S. interest rates and a resurgent China fueled commodity demand, carrying an exports bonanza, fast economic growth and a possibility to scrounge at record low yields. Signs of a setback sparked a global sell-off in rising markets this week, with over $6 billion taking off the sector. That the golden years might be ending was made clear lately when Brazil, one of the main beneficiaries of China's increase and the simple money tide, saw its outlook cut to negative by Standard & Poor's, putting it in line for a demote. Moody's has since informed it might also cut Brazil's rating viewpoint because of weak growth, rising debt and lack of improvement. Those worries pertain to a number of emergent countries, says Sebastian Barbe, head of emerging markets strategy at Credit Agricole, who does not wait for any significant rises in standard emerging market ratings soon. Data reflects vary in ratings impetus. Fitch, for example, upped six emerging sovereigns last year, against 18 and 13 upgrades correspondingly in 2011 and 2010. Negative outlooks are now double as common as optimistic, a sea change from late 2011. The picture is alike for S&P, which promoted 10 emerging ratings in 2012 versus 19 in 2011. So far this year it has hoisted four emerging market royals while cutting seven.

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