Bangkok--26 Sep--Standard & Poor's Standard & Poor's Ratings Services today released a commentary that examines the relationship between sovereign credit ratings and the socioeconomic variables that affect overall business conditions in emerging market economies. The report, entitled "Why Investors Should Know How Sovereign Ratings And Country Risk Match And Diverge," surveys 47 countries categorized as having emerging market economies (EMEs). According to Standard & Poor's credit analyst Helena Hessel, understanding the specific business environment in individual emerging economies becomes more crucial for investors given today's more uncertain credit-market conditions and risk-averse psychology. "One way to gain this kind of insight is to focus on the relationship between a government's own financial strength--its sovereign rating--and the broader concept of country risk-the overall business environment in a country," said Mrs. Hessel. "As the credit cycle abates and market participants become more conscious of risk, we believe a clear understanding of country risk indicators is key, even in countries where a sovereign's own financial position is strong," she added. The commentary compares long-term foreign currency sovereign credit ratings with external governance-related indicators from reputable independent organizations. The focus is on the relationship between a government's financial strength and its country's risk in rated EMEs. "This is not a formal scoring exercise, but rather a compilation of relative rankings using a set of indicators other than the standard macroeconomic criteria," said Mrs. Hessel. "The credit rating itself is fundamentally an indicator of financial strength--a government's ability and willingness to service its debt obligations on a timely basis--and therefore may be influenced strongly by a range of sociopolitical, economic, and financial factors," she added. Mrs. Hessel explained that, as might be expected, a clear positive correlation exists between country risk indicators and Standard & Poor's sovereign credit ratings. The data yield some interesting cases in which sovereigns differ with regard to both underlying country indicators and their composite country risk score. "Overall, based upon the comparison of country risk scores and sovereign ratings, one important conclusion can be made: sovereign ratings are dominated by debt and fiscal issues," noted Mrs. Hessel. "That is why countries with fairly good country risk scores can still end up with a very low sovereign rating. In today's globalized international economy, these economies are the least able to withstand a sudden liquidity squeeze," she concluded.Composite Country Risk Index (Top 10) Estonia 1 Chile 2 South Korea 3 Lithuania 4 Barbados 5 Latvia 6 Malaysia 7 Czech Republic 8 Slovak Republic 9 Hungary 10 Source: Standard & Poor's, 2007 The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected]. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; select Ratings in the left navigation bar, then Credit Ratings Search. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4017. Members of the media may also contact the European Press Office by sending an e-mail to [email protected]. Media Contact: David Wargin, New York (212) 438-1579 [email protected] Analyst Contacts: Helena Hessel, New York (1) 212-438-7349 Olga Kalinina, CFA, New York (1) 212-438-7350