In April 2014, Standard & Poor’s lowered its rating on Russian sovereign debt to BBB-, the lowest investment grade. It was the first time the ratings agency has downgraded Russia since 2008. Russia’s BBB- rating is the same as fellow BRIC members Brazil and India, but it looks like Russia is the most vulnerable to being lowered to junk status. [Russia ETFs Slide After S&P Downgrade]
S&P’s move to put Russia on CreditWatch negative reflects the ratings agency’s “view that there is at least a one-in-two likelihood of a negative rating action within 90 days,” according to S&P.
Credit ratings agencies have taken increasingly glum view of Russia’s financial positon as oil prices have plunged. The United States Brent Oil Fund (NYSEArca: BNO) has plunged 45% over the past 90 days. Russia, the largest non-OPEC oil producer, prices crude in Brent.
“Plunging oil prices have exposed the close link between growth and oil prices, notwithstanding the impact of a more flexible exchange rate. For 2015, Fitch is assuming oil prices average USD70/bbl, markedly lower than the USD100/bbl we assumed in July 2014. If the oil price stays well below this, it could precipitate a deeper recession and put further strain on public finances, severely limiting the authorities’ room for manoeuvre,” said Fitch.
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ETF Trends editorial team contributed to this post.