Some countries facing possible rating cuts and 'junk' status

As well as those now teetering on the investment grade/junk cusp, China, Chile, Malaysia, South Africa, Mexico, Indonesia, Thailand, Israel, Saudi Arabia and much of the Middle East are also priced for rating cuts according to some data.

Brazil's downgrade had long been expected following recent scandals and its slump towards recession, but it has sharpened the focus on who could be next.

Slumping commodity prices and the prospect of rising global interest rates are adding to some liberal helpings of ugly national politics and laying bare a number of countries' failure to reform in the good times.

S&P's Capital IQ unit has what it calls Market Derived Signal (MDS) models that show credit default swap markets currently expecting a major wave of EM downgrades, a number of which would see the big names mentioned going into junk status.

Russia, which only Fitch of the three main agencies at BBB- still rates as investment grade (IG), is currently trading as if it were at least a three notches into junk.

Turkey, which both Moody's and Fitch currently have on the lowest investment grade rung, is trading as if were two steps into junk while for South Africa it is one.

Colombia, which is being hit hard by the fall in its main export oil and a rift with neighbour Venezuela, is also expected to slide back into junk according to the Market Derived Signal model.

The difference between investment grade and junk status can be huge for countries because many global investors tend to steer away from those with lower ratings.

The downgrades currently being seen are also reversing the roughly 200 upgrades emerging markets have earned since 2007, nearly half of them to the top "investment grade" category.

As well as those now teetering on the investment grade/junk cusp, China, Chile, Malaysia, South Africa, Mexico, Indonesia, Thailand, Israel, Saudi Arabia and much of the Middle East are also priced for rating cuts according to the data.

Historically, though, the gloomy view of markets does not always turn into reality.

The rating firms also point out that although there are a clutch of heavyweights on downgrade warnings, the picture in emerging markets for the moment at least is mostly of "stable" outlooks.

"The big markets that are most in focus are Turkey and Russia," Sarah Carlson, Senior Vice President at Moody's, told Reuters. "We don't have many countries in Latin America on a negative outlook. Most are on a stable outlook."

Ahead of its review of Turkey next week, Fitch senior director Paul Gamble said on Tuesday the country's fiscal position, which is a key metric for its rating, had not changed as a result of its recent political turmoil.- Reuters