Determinants of Credit Ratings in the BRICS Economies

Determinants of Credit Ratings in the BRICS Economies
Author: TSHIAMO PELOEAHAE
Degree: Master’s in Commerce, Financial Economics
Date: 2022
Institution: University of Johannesburg, College of Business and Economics,
Supervisor: Prof B Simo-Kengne

The dissertation titled “Determinants of Credit Ratings in the BRICS Economies” by TSHIAMO PELOEAHAE, submitted for a Master’s in Commerce in Financial Economics at the University of Johannesburg under the supervision of Prof B Simo-Kengne, investigates the factors influencing credit ratings in BRICS countries, with a particular focus on market uncertainty. The study uses Fitch credit ratings data spanning from 1994 to 2019 and incorporates moving averages of daily stock prices over 50- and 200-day rolling windows to capture market volatility. Employing a Panel Ordered Probit Model, the research examines how uncertainty, alongside macroeconomic and governance variables, shapes sovereign credit ratings.

The findings indicate that market uncertainty is a statistically significant determinant of credit ratings in BRICS economies. Periods of high stock market levels tend to support credit rating upgrades and reduce the likelihood of downgrades, whereas low market levels increase the risk of a downgrade. This suggests that fluctuations in stock prices directly affect the creditworthiness assigned to countries, highlighting the sensitivity of sovereign ratings to financial market dynamics.

The study concludes that although governments have limited direct control over market volatility, policy measures aimed at stabilizing financial markets could help mitigate adverse effects on credit ratings. These results offer valuable insights for policymakers, investors, and financial institutions, enhancing the understanding of credit rating determinants and their implications for emerging economies.