SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 5 OCTOBER 2015ANALYST CONTACTSIrina Baron Asst Dir-Research Associate irina.baron@moodys.comXian Li Senior Research Analyst xian.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.Sovereign Risk ReportSovereign Credit Risk Eases Even as Uncertainty Lingers Market price based measures of credit risk were generally improved over the past week, despite the weak reported numbers on Chinese factory activity. The countrys manufacturing purchasing managers index (PMI) picked up slightly from 49.7 in August to 49.8 in September. Despite the uptick, a reading below 50 still points to a contraction. Continuing weak economic data from China raises hopes among investors that the government may take further actions to generate growth by boosting spending. The government has already implemented five interest-rate cuts since November and several reductions in required bank reserves.Sovereign Expected Default Frequency (EDF') metrics 1 , 2 , which measure the expected probability of default over a one year time horizon, fell in four of the five global regions over the past week, with Latin America&the Caribbean recording the highest weekly drop in the average risk of default (see Figure 1 below). All eleven countries with Sovereign EDFs in that region experienced a weekly decline in risk. Brazil, Venezuela, and El Salvador led the group with the sharpest weekly declines in their probabilities of default. Vietnam, Indonesia, and Korea topped the list of improving countries in Asia-Pacific, while Morocco, Algeria, and Saudi Arabia improved the most in the Middle East&Africa.Figure 1: Average Weekly Change in Sovereign EDF Measures by RegionMOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 5 OCTOBER 2015 SOVEREIGN RISK REPORT: SOVEREIGN CREDIT RISK EASES EVEN AS UNCERTAINTY LINGERSEconomic new...
