Ratings agencies. Can't live with 'em, can't live without 'em, these pros say.
Moody's and Standard & Poor's rocked the forex market, among others, when they issued their warnings about the troubled debt-ceiling talks. But on the flip side, their comments may be pressing the two sides to reach a deal, already. And that's the way things work with rating agencies, these pros say.
Ratings agencies "missed the boat in the Asian crisis, they missed the boat in the dot coms," says Win Thin, global head of emerging markets currency strategy at Brown Brothers Harriman. Also, there is "always a risk that they overcompensate" when they are late, he told CNBC.
But they also serve a purpose, says Andrew Busch, global currency and public policy strategist for BMO Capital. "The ratings agencies play a critical role in what's going on in Europe. The EBA came out with stress tests and they're woefully inadequate," and ratings agencies can help provide a more realistic picture, he says. And he adds, "I think they're doing a good thing putting pressure on both Republicans and Democrats to come to the table and come up with an agreement."
All well and good, but what investors really need is proactive advice, not a rating change after a disaster. Thin says he has his own model that he uses to assess the outlook for Europe and emerging markets. And what does it show?
"Significant downgrades are still ahead for Spain, Italy, Portugal, Ireland," Thin says. But on the flip side, "emerging markets have upgrade stores galore. There's a real dichotomy" in developed markets and emerging markets on the ratings side, he says.
You can watch the whole discussion in the video clip.
Now you can get there before the ratings agencies do. Happy hunting.
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