SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 25 January 2016ContactsIrina Baron Asst Dir-Research AssociateMAirina.baron@moodys.comXian Li 212-553-1404Senior Research AnalystMAxian.li@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.In republication, South Africas Sovereign EDF measure, mentioned on page 2, was changed from 18% to 0.18%. In addition, the reason for the vulnerability of South Africas economy to the Fed rate hike was revised to the countrys persistent, although shrinking, current account deficit.Sovereign Risk ReportOil Price Rebound Halts Climb In Global Sovereign Credit RiskMarket-based measures of sovereign credit risk were mixed yet again across the globe in the week ending January 22, 2016. The Asia-Pacific regions average Sovereign EDFTM (Expected Default Frequency)1 metrics, which measure the expected probability of default over a one-year time horizon, increased earlier in the week, as investors reacted to weak Chinese GDP data, which showed the slowest quarterly expansion since 2009. Sovereign EDF measures rebounded towards the end of the week, as the Peoples Bank of China added 400 billion yuan to its financial system, bringing net monthly injections from different lending tools to more than 1 trillion yuan. Additionally, Chinese Vice President Li Yuanchao expressed the governments readiness to intervene should market turmoil continue. The Shanghai Stock Exchange Index had weakened by 4% in the first half of the week, and strengthened mildly on Friday as it settled at 2,916.56. Korea, Indonesia, and Malaysia saw the greatest weekly declines in Sovereign EDF measures within that region.The average change in sovereign probability of default over the past week, by geographical region, is shown in Figure 1. Latin America recorded the largest weekly drop in the average risk of default (16.83%). Within that ...
