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Wednesday, 23 August 07:44 (GMT -05:00)



Business And Politics News

Cyprus gets it credit rating cut: possible consequences for investors


 

 

Over the last year international rating agencies have been depriving some EU countries of their investment attractiveness by cutting their credit ratings. Among those countries are Greece, Ireland, Spain , Portugal and Italy.
 

 

 

 

 

 

Another wave of panic among investors was raised by Moody’s as this rating agency had downgraded Cyprus’s sovereign rating by 2 levels at a time – form A2 down to Baa1. It means that the country’s T-bonds and other securities instantly turned into risky assets for investors.
 
Which EU countries are currently in the “credit risk zone’ and why?
The common European currency keeps losing its value while the yields of the risky bonds issued by Italy and Spain are growing. According to the experts of Masterforex-V Academy, such processes can be explained by the fears that the EU and global economy cannot solve the existing debt problems.
·         Italy. Its economy is estimated at $2 trillion. Its sovereign debt has reached $2,45 trillion. Obviously Italy will be saved at the expense of other EU countries because it plays one of the key roles in the EU and eurozone’s economy.
·         Ireland, Spain , Portugal , Greece. A couple of weeks ago the Irish T-bond yield grew up to 13,5%, which is a historical record. The Spanish T-bond yield also hit the record. On July 11th it reached the level of 5.8%, the highest level since 1997. In Portugal the 10-year T-bond yield rose to 13.2%. Greece is the frontrunner. Its bond yield is 17.2%.
Now it is Cyprus that has joined the company of risky economies. What is happening with the global economy? What country is next? These days credit ratings are only downgraded, thus affecting the investment attractiveness of the economies. The reasons for a rating cut can be different but the consequences are often the same – growing market uncertainty.
 
 
On July 27th Moody’s Investors Service downgraded Cyprus’s rating by 2 levels – from А2 down to Ваа1. The country’s short-term bond rating was also cut from Р-1 down to Р-2, with a negative forecast. The rating agency also made a negative forecast for Cyprus’s economy. According to Moody’s, in 2011 the country’s GDP is expected to show no growth while in 2012 it is expected to grow only by 0.1%.
According to the experts of Masterforex-V Academy, there is a game played in the market of the derivatives issued by Cyprus:
1.       In Feb 2011 Moody’s cut Cyprus’s sovereign rating by 2 levels – from Aa3 down A2
2.       In March 2011 Standard and Poor’s (S&P) deprived Cyprus of its “А” long-term rating by dropping it down to “A-”.
3.       In May 2011 Fitch Ratings cut the country’s long-term rating from AA- down A-
4.       Rating forecasts. All the forecasts were negative (a negative forecast means that the rating may be downgraded further).
The reasons for the latest rating cut
 
1.       According to the official statement released by Moody’s, concerns over the consequences of the explosion at the country’s military explosive storage, which took place on July 11th,  was the main reason for the rating cut. It should be noted that the devastating explosion killed 13 people and damaged the biggest local electric power plant, which satisfies 60% of the country’s demand for electricity, thus causing a real energy crisis in Cyprus. The president of the country’s central bank reported that after the explosion the economy was in a state of emergency and called on the authorities to take emergency action in order to avoid asking for external financial aid. The recovery work alone is said to cost €1B or 5.6% of the national GDP. Moreover, the energy crisis hit the island at the height of the tourist season, which will inevitably bring major losses to the island’s tourist industry and the entire economy of Cyprus.
2.       While making a decision to cut Cyprus’s rating, Moody’s expressed doubt about the ability of the country’s financial system to withstand the escalating crisis in neighboring Greece. If Greece defaults on its debt, numerous Cyprus banks will find themselves on the verge of bankruptcy and will have to ask for governmental support. About 30% of the bank assets (€5B) belong to Greek banks or their affiliates. Besides, the country’s banks are some of the major holder of Greek bonds - €14B. On July 25th Moody's cut Greece’s rating to junk – 3 levels down - Caa1 to Ca, which is one step away from the minimal level C.
3.       Another consequence of the explosion was a major political crisis in Cyprus. The opposition instantly started a series of protests, blaming the president and the government for being negligent and asking them to leave.
 
Rating cut: possible threats for Cyprus.
First of all any loans will be costlier for Cyprus:
1.       The rating agencies will force the government to implement a series of structural reforms in the country’s social system and public sector. In other words, it’s about austerity.
2.       Probably, the authorities will have to bail out several banks in order to make them less dependent on the Greek crisis.
3.       There probably won’t be any major changes in the country’s taxation system because the authorities won’t ever want Cyprus to lose its status of “offshore heaven”, especially as rating cuts usually have almost no impact on the offshore business.
Market Leader and Masterforex-V Academy would appreciate it if you could participate in a survey. Please, visit the Academy’s forum and answer the question given below:
 
Should US rating agencies be trusted?
·         Yes, they should. They perform an in-depth analysis for any certain country.
·         No, they shouldn’t. They only aggravate the situation.
·         Your own opinion

 

 

 

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U.S. Energy Revolution Announced by Trump Threatens Russia

Donald Trump’s speech about starting a new energy revolution together is now discussed by the international community. It seems that the USA is going to start a new policy regarding commodities. The changes are expected to take place within the next 10 years.
 

 

Apparently, America’s new energy policy is aimed at dominating the global markets over time. That’s why Trump and his administration are now betting big on the local oil and gas production. The thing is, the sources of the so-called green energy are not capable of replacing hydrocarbons for now, which is why they still have to rely mostly on conventional energy carriers, especially as shale oil and gas production has been booming over the last few years.
Publication date: 18 August 06:50 AM

Trump’s Policies Make USA Lose Their Leading Position in the West

More and more international experts are concerned about Donald Trump’s policies. Some of them are concerned that because of him and his actions, the USA may lose their leading role in the Western world.  

 

 

According to Fareed Zakaria, political expert, CNN host and columnist for The Washington Post, Trump’s recent political decisions have made the European Union so united that Putin could never have dreamed of. Even though he is not going to make the Western world collapse, the USA may still lose the number-one status in the Western world.

Publication date: 31 July 12:09 PM

Does China Oust Russia From Central Asia?

As the situation in Afghanistan is getting worse, this is raising a lot of concerns in the international expert community. The Islamic terrorist threat may spread from there to Russian and China, they say.

 

 
According to a Norwegian observer for Dagbladet, there exist 5 countries in Central Asia that can be seen as potential threats to Russia and China. The thing is, the Islamic terrorism may well spread from those countries to their neighbors. They say that Afghanistan is now the biggest potential threat since the amount of armed conflicts in the country are getting more and more frequent and tough. As Taliban (the local terrorist organization) is said to be sponsored and suppled with arm and ammo, the USA seems to be putting the blame for this on Russia.
Publication date: 29 July 11:53 AM

China Invests Heavily In Africa

You probably know that has been investing in a number of countries of strategical importance. There is a lot of African countries on the list. According to several observers, Chinese banks have given such countries over 77 billion euros since 2000.

 

 
Not so long ago, there was a documentary broadcast on the national TV. The documentary is about a railway line in Kenya built by China Road and Bridge Corporation. It praises Chinese engineers and tells the viewer that the Chinese government is ready to support African countries on their way to economic growth.
Publication date: 24 July 11:46 PM

Chinese Economy Is Way Stronger Than Trump Thinks

The Chinese economy has got much stronger. It can now even be compared to the American one, which is viewed to be the world’s strongest economy. Washington clearly underestimates Beijing when saying that the China has been flourishing in the international markets exclusively at the expense of unfair trade.

 

 
Publication date: 23 July 10:48 AM

British Start Getting Disappointed with Brexit, Soros Says

Last year’s Brexit referendum has become a major challenge for the British government, George Soros says. He says that more and more British citizens start getting disappointed with the Brexit.

 

 
The world-famous financier and CEO of Soros Fund Management assumes that now the economic reality starts revealing the real state of affairs and debunk their delusions related to the happy living outside of the European Union. More than 12 months ago, the advocates of the Brexit scenario were trying to persuade people that this choice won’t affect people’s standards of living. Well, since then, the government has been trying to implement this promise at the expense of increasing the internal debt.
Publication date: 14 July 02:40 AM

Two Reasons Why Russia Keeps Losing Influence Over Post-Soviet States

After the USSR ceased to exist, the Kremlin was counting on retaining their influence in the region. However, the truth is that Russia as the major successor to the USSR has been losing its influence over the remaining post-soviet states. There are 2 reasons for that.

 

 
According to the related report recently published by private American analytic company Stratfor, there is a range of new tendencies making it difficult for Russia to stay influential in the post-soviet region, especially when it comes to Ukraine. The two major reasons for that are believed to be the declining role of the Russian language in the region as well as the existing threats of mass protest inside Russia itself.
Publication date: 06 July 01:42 PM

Business with China: New Reality after Blocking Yandex and VK in Ukraine

Ukrainian President Petr Poroshenko has expanded the list of sanctions against individuals and legal entities from Russia. To be more specific, Ukraine imposed sanctions on several Russian online companies, including Yandex, which is Russia’s biggest IT company, as well as some other popular web services like VK, Odnoklassniki, and Mail.ru Group. According to the presidential decree, Ukrainian Internet providers are forbidden to grant access to those blacklisted websites.

Publication date: 06 July 01:13 AM

China Doesn’t Need Russian Gas and Pipelines

Don’t you remember how a couple of years ago Gazprom cut natural gas supplies to Ukraine a number of times. By the way, Ukraine alone used to buy 55 billion cubic meters of natural gas back then. Now Ukraine buys no natural gas form Russia at all. Apparently, Moscow keeps on looking for other outlets. There has been a lot of buzz about China as a new big outlet for Russian natural gas and crude oil. It turns out that two new pipelines should have transferred to China some 38 billion cubic meters of natural gas every year. Yet, this was the maximum amount, and it couldn’t clearly make up for the export of natural gas to Ukraine.

Publication date: 05 July 11:15 AM

Mass Media on Forthcoming Trump-Putin Meeting

For those of you who don’t know, the first official meeting between Donald trump and Vladimir Putin has been confirmed. It’s planned for July 7, during the G20 summit in Hamburg, Germany.

 

 
Some observers say that the White House did the Kremlin a favor by being the first one confirming the official meeting during the G20 summit. This announcement helped the sided to get of the rumors around the situation and helped Moscow to save face in the Russian media space.
Publication date: 05 July 06:24 AM