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Top News on Emerging Markets, Week Ending March 28, 2014: Emerging markets saw plenty of action this week. Standard & Poor's cut Brazil's credit rating to "BBB-," metals stock in China is on the rise, and Greece and Portugal are seeing rapid growth on hopes of an end to the Euro crisis.
Here's a roundup of this week's top news on emerging markets.
Top News on Emerging Markets Roundup
According to S&P, Brazil's expansionary fiscal policy – combined with sluggish economic growth – is increasing the country's debt. This has led the ratings agency to downgrade Latin America's largest economy to "BBB-," S&P's lowest investment grade rating. That puts Brazil in line with the Philippines and Spain, one notch below Russia.
S&P's move is the end of a decade's run of upgrades for Brazil. In addition to the increasing debt, S&P cited mixed signals emanating from the Brazilian government with its negative implications for economic policy credibility and fiscal accounts. S&P predicts Brazil's growth will slow from 2.3% in 2013 to 1.8% this year.
Brazil's economy has been struggling for a number of years to return to its rapid 7.6% growth rate from 2010. Increasing inflation triggered Brazilian policymakers to increase interest rates 3.5% since April, after having lowered them 5.25% since August 2011.
Brazil received its last ratings upgrade from S&P in November 2011. The country is still rated by Fitch Ratings as "BBB" and the equivalent, "Baa2," by Moody's. In October, Moody's cut its outlook on Brazil from positive to stable.
China and Metals Shares
Speculation that China is accelerating its reforms in order to support growth pushed Chinese shares and metals stocks up in Hong Kong on Tuesday, and the yuan rose in parallel.
Copper went up 0.8% in Tokyo by 12:39 p.m. on Tuesday, marking its second rise in three days. The Hang Seng China Enterprises Index continued its three-day rebound after last week's bear market, while Shanghai's major equity index went up 0.4%.
Platinum went up 0.3% and gold rallied from its one-month low.
So far, mixed U.S. economic reports plus signs of a Chinese slowdown have cost global equities $270 billion worth of value. In China, government clampdowns on risky lending put the brakes on the economy even as the government there hopes to improve the quality of the country's growth.
Indicators of faltering factory output from China and the U.S., a gradual reduction in the U.S. economic stimulus, and the Chinese government's push to curb credit expansion and shadow banking, but to attempt to maintain the country's economic expansion, all hit news on emerging markets this week.
Greece and Portugal
With alternatives looking increasingly risky and expensive, yield-hungry investors are heading back to Greece and Portugal after four years of shunning the bailed-out countries. According to Thomson Reuters data, Greek and Portuguese shares have been Europe's best performers of 2014.
Economic improvement in their once-troubled economies is the main driver according to investors, who are also encouraged by tensions between Russia and the West, and by growth concerns in other emerging markets.
Greece's recession is starting to ease just two years after it nearly crashed out of the Euro zone back in 2012, while Lisbon is already on the rebound; Portugal is due to exit its own bailout in around two months' time.