S&P’s downgrade is good for Chinese stocks
And investors are going to keep buying up Chinese corporate debt, too
The timing of Standard & Poor’s downgrading of Chinese sovereign credit rating is likely to ensure any impact on markets will be to the upside, as Bloomberg reports Thursday.
With the all-important party congress meeting set for the end of next month, Chinese officials will pull out all the stops to keep markets performing well, as they did after the Moody’s downgrade in May. The Shanghai Composite made up its losses after that move, closing 1.4% higher the day after, while the yuan posted its largest weekly gain in almost a year, amid speculation of government intervention.
The impact on bond markets is likely to be minimal as well, and comes at a pivotal moment with the government planning a return to the dollar market for the first time since 2004.
“S&P’s is more of a catch-up rating action,” Neel Gopalakrishnan of DBS Group was quoted by Bloomberg as saying. “There should not be much impact on credit markets. A+ is still a solid investment grade rating. There is no material information in S&P’s release that the market was not already aware of.”
After Moody’s cut in May, dollar borrowing costs were up only briefly before returning back to near-lowest level in ten years.