June 20, 2017 / 12:06 PM / 2 years ago

S&P says "real possibility" of China downgrade, Russia sanctions would threaten upgrade hopes

LONDON, June 20 (Reuters) - There is a “real” chance of a downgrade to China’s credit rating, S&P Global’s top sovereign analyst said on Tuesday, while Russia’s hopes of being lifted back to investment grade would be hurt by new U.S.-led Western sanctions.

S&P currently rates China AA- with a negative outlook but its next move is being watched carefully after rival agency Moody’s cut the world’s number two economy by one notch last month due to its mounting debts and eroding fiscal strength.

“The Chinese rating has a negative outlook, signalling that a downgrade is a real possibility,” S&P’s top sovereign analyst, Moritz Kraemer, told the Reuters Global Markets Forum chatroom.

He said the decision was likely to be determined by whether China is able to move away from a credit-driven growth strategy based on investment towards a more balanced and sustainable growth strategy driven by domestic consumption.

“There has been some progress,” Kraemer added, “but so far it has been fairly slow.”

He said S&P’s positive outlook on Russia’s BB+ rating remained “justified” for now. However “any renewed deepening of geopolitical risks could diminish the chances of an upgrade.

“This is because the consequences of, for example, a tightening sanctions regime might choke off the recovery of the Russian economy with fiscal but also potential political risks.” (Reporting by Marc Jones; Editing by Nigel Stephenson)

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