Asset markets continue to trade with caution reflecting that a lot of uncertainty in terms of the success of any containment strategy and the duration of the impact still remains. Encouragingly, Italy, one of the more afflicted European countries and further ahead in the ‘lockdown’ process has been reporting a reduction in the number of new cases which on Monday reached a two-week low and levelled off on Tuesday. That said, a number of countries are still in the early stages of countering Covid-19 and cases still continue to rise in many places, particularly the US where Trump warned of a “very, very painful two weeks”.
Global economies face demand and supply shocks while oil exporters face an additional shock following the collapse in the oil price. However, countries with sizeable asset buffers and stronger NFA positions have greater policy scope to respond to the situation and weather challenging periods. Last week, following downward revision to its oil price forecasts and downward revisions to global growth S&P moved to downgrade the ratings of a number of oil producers. However, they continued to affirm the ratings of Abu Dhabi, Qatar and Russia.
S&P affirmed Qatar’s rating at AA- with a stable outlook noting: “Despite increased external financing needs, we still regard Qatar's overall external position to be a key strength, underpinned by our estimate of its large liquid financial assets, equivalent to more than 100% of GDP. This provides the government with an exceptional buffer during financial shocks.” S&P also affirmed Abu Dhabi’s rating at AA with a stable outlook reflecting its view that Abu Dhabi’s net asset position of 250% of GDP “cushions” it against lower oil prices and external shocks. Russia’s BBB- rating with a stable outlook was also affirmed by S&P who noted the “strong policy framework” in conjunction with a flexible exchange rate and “the stringent fiscal rule, amid solid external and public balance sheets” should allow it to absorb the shocks.