Decoupling Theory May Have Merit, After All

Institutional Investor Releases Its Exclusive Semiannual Country Credit Survey

In a sign that emerging market economies are decoupling from trends in the developed world, the creditworthiness of most emerging economies rose significantly in the past six months while that of virtually all industrialized countries in North America, Western Europe and Asia declined, according to Institutional Investor's exclusive semiannual Country Credit survey.

Developed countries were affected by the fallout from the global credit crisis, with the U.S. seeing its credit rating fall 0.8 point, to 93.0, Western Europe dropping 0.9 point, to 90.2, and Japan sliding 0.8, to 90.6. The ratings are on a scale of zero to 100. But surprisingly little of the economic doom and gloom has seeped into the emerging markets.

Latin America leads the gainers among emerging markets. Ratings for 26 of the 28 countries in the region rise, led by Brazil, which is up 5.2 points at 65.8, and Peru, up 4.8 points at 62.5. China leads the way in developing Asia, rising 1.3 points to 77.8. High oil prices continue to fuel gains in creditworthiness across much of the Middle East and North Africa.

Thanks to the strength of emerging markets, the average credit rating worldwide rises 0.7 point over the past six months, to 47.3.

The biggest increase in the survey belongs to Iraq; its rating is up 8.8 points. The U.S. languishes in 13th place, just behind the U.K. and France.

Institutional Investor's September 2008 Country Credit Ratings: Top Ten Countries

Rank/Sept  Rank March              II Credit   Six-Month    One-Year
 2008         2008       Country     Rating      Change      Change
---------  ----------  ----------- ---------   ---------    --------
1              1       Switzerland    96.0        -0.4        -0.4
2              2       Luxembourg     95.4        -0.9        -0.1
3              3       Norway         95.2        -0.7        -0.8
4              7       Germany        95.0         0.2         0.2
5              4       Netherlands    94.7        -0.3        -0.1
6              9       Canada         94.7         0.1         0.3
7              5       Finland        94.6        -0.3        -0.4
8              6       Sweden         94.1        -0.7        -0.4
9              8       Denmark        94.0        -0.7        -0.7
10             10      Austria        93.7        -0.9        -0.7

For more data on all 177 countries in the survey, go to www.iimagazine.com, including the rating methodology; regional rankings; the economic, financial and political indicators that sovereign-risk analysts consider most important in rating each region; and investors' views on the outlook for global credit and related issues.

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