Citing an increasing debt burden, S&P downgraded China’s long-term rating by one notch to A+ (stable), bringing it in-line with the other two main rating agencies (A1 and A+); this is the rating agency’s first downgrade to the country since 1999. Although Chinese authorities have taken huge steps in reigning in financial risks, particularly within the ‘shadow banking’ sector, debt has continued to grow, albeit at a slower pace more recently. The S&P move was no surprise, as such, market reaction was muted post the announcement, which suggests that asset classes had already priced in the downgrade.
The Green Bond market has really taken off over the past couple years and according to Moody’s just last year the market rose 120%; boosted by Chinese issuers, particularly Chinese banks, in their fight to reduce pollution across the country. Issued with an intention to fund environmental projects, corporates, banks and supranationals have been issuing these tax-exempt bonds, which now account for over USD 200bn total issuance; although still a tiny proportion (~1.5%) of total global debt to plough into climate changing projects; if we consider the growing impetus of the Paris Agreement.
Some good news for Mexico yesterday as they successfully auctioned off eight deep water oil and gas blocks in the Gulf of Mexico as an ongoing policy to open up the country’s energy industry. Companies such as China Offshore Oil Corporation (CNOOC), Australia’s BHP Billiton, France's Total, Norway’s Statoil, Malaysia’s Petronas, BP and a number of US companies were all successful bidders with a number of joint ventures established.
Mexico’s relieved energy minister Pedro Joaquin Coldwell said, ‘This underlines Mexico is very competitive in the oil and gas sector’ adding, ‘Before the current administration ends in two years’ time Mexico will likely hold three more oil auctions for shallow and deep water, as well as onshore areas’.
After two years of El Nino drought, the India Meteorological Department (IMD) has predicted that this year’s monsoon will be fruitful, saying last week that precipitation between June and September will be ~106% of the long-term average. However, over the last 20 years, the IMD have only successfully predicted the chance of rainfall on 5 occasions. With over half of the labour force employed within the the agriculture sector and around 60% of the nation’s farmland reliant on rainfall, these predictions are hugely important. Poor rainfall and extended drought have devastating effects on agricultural production and thus a disproportionate effect on the poor.