Treasury secretary Janet Yellen said that she “strongly disagrees” with Fitch’s decision. — Reuters
PETALING JAYA: The US government rating downgrade, which has shaken Asian markets including Bursa Malaysia, is only likely to have temporary effects on the regional equity markets.
Analysts said investors’ knee-jerk reaction following Fitch’s move to downgrade the United States’ rating down by a notch would reverse once investors realised the world’s largest economy remains resilient.
Rakuten Trade head of equity sales Vincent Lau pointed out that only one out of the big three rating agencies had downgraded the US government rating.
“Only Fitch has announced a downgrade. Other agencies like Standard and Poor’s and Moody’s Investors Service have so far maintained their ratings.
“So, it is not as serious as it sounds,” he told StarBiz.On Aug 1, rating agency Fitch lowered the US government’s top credit rating to AA+ from AAA, citing an expected fiscal deterioration over the next three years, as well as a high and growing general government debt burden.
Treasury secretary Janet Yellen said in a statement that she “strongly disagrees” with Fitch’s decision.
While Lau acknowledged that there were concerns about weaker growth and further interest rate hikes, he opined that corporate earnings still had “some leg to run”.
“Our Rakuten Trade Ideas have so far reported 88 US-listed companies for the ongoing earnings results released since July 17.
“From the Bloomberg consensus rating, we noticed there were 78% of the companies that beat the market earnings estimate.
“Overall, the results season so far has been fairly positive,” according to Lau.
The downgrade by Fitch resulted in shock selling in Asia yesterday.
Bursa Malaysia investors took the opportunity to cash in, causing Malaysia’s benchmark FBM KLCI to decline 6.68 points, or 0.46%, to 1,444.56 points.
Most counters in the market were on a slide, with 555 decliners compared to 348 gainers.
The trading volume was 2.8 billion shares valued at RM1.88bil.
In key markets, Japan’s Nikkei led the Asian sell-off, falling 2.3%. Meanwhile, South Korea’s Kospi dropped 1.9%.
China’s Shanghai Composite Index was down 0.89% and Hong Kong’s Hang Seng index dove 2.47%.
However, Lau did not see the market pullback as a major issue.
“It is more of profit-taking, the market is finding excuses to take profit. The downgrade by Fitch allowed profit-taking following weeks of a market rally,” he said.
Another analyst also opined that the market panic will not last long.
“The AA+ rating is only the second best rating for a country. It indicates that the issuer is financially robust and has cash reserves to meet its debt obligations.
“Back in 2011, Standard and Poor’s also downgraded the US government rating to AA+ which is unchanged till today.
“Regardless, the US economy remains resilient and the stock market has continued to perform despite some blips,” the analyst said.
