It’s another rating review day today with two key CEEMEA sovereigns in focus, Russia and Qatar, both facing some form of sanctions/regional blockade. On one hand, we have Fitch which will be reviewing Russia’s sovereign rating of “BBB-/Stable O/l” while on the hand Moody’s is scheduled to review Qatar’s Sovereign rating of “Aa3/Negative O/l”. We expect affirmation of rating and outlook for both Russia and Qatar. Although, for Qatar, we note that downgrade risks are rising.    Russia - Expect no rating downgrade and very low prospects of outlook d/g    Fitch is the lone agency amongst the 3 main rating agencies to rate Russia at IG level (BBB-) while Moody’s and S&P rates Russia at Ba1 and BB+ level respectively. We note that Russia’s macro fundamentals have continued to improve, with growth recovery exceeding our expectations (2Q17 GDP grew by 2.5%, highest in last 14 quarters and our economist has revised 2017 growth forecast to 2% from 1.6%), disinflation trend continuing(August inflation fell to 3.3%YoY), and fiscal deficit is on a shrinking path. The recent recovery of oil prices is also welcoming. Given positive macro momentum and improving trends on the fiscal front, we believe Fitch will affirm its IG rating for Russia. As for the outlook, we take note of new US sanctions and more importantly recent developments on the banking system front (bailout of one of the largest private banks by the Govt) and wonder if this could pose a risk for outlook revision to negative. We conclude that the US sanctions should not have a significant economic impact and the recent bank bailout should not have major contagion risks for the banking system as a whole. Thus, we expect very low prospects for a change in outlook and expect Fitch to maintain its Stable outlook. Note, Fitch has maintained an IG rating on Russia since 2004 and BBB- level since 2015, their last affirmation being in March 2017.    Qatar -Expect affirmation for now, although downgrade risks are rising    Qatar is currently rated Aa3/Negative by Moody’s which is in line with S&P and Fitch’s equivalent level of BB-/Negative. As per Moody’s Sovereign calendar for 2017, they are due to review Qatar’s sovereign rating today. However, we note, they recently published an in-depth report on Qatar last week on 14th September as part of their annual credit analysis. Technically, this was not a formal rating review and the ratings as of that date (Aa3/Negative) do not constitute a rating affirmation. However, theoretically, this leads us to believe that there would be less incentive to put out a detailed report closer to the formal review date, if the credit committee were considering a downgrade in rating a week later. The key driver of the outlook change to negative in July was economic and financial risks for Qatar arising from the ongoing dispute between Qatar and its fellow GCC neighbors. And Moody’s noted in its 14th September as well as July note that “likelihood of a prolonged period of uncertainty extending into 2018 has increased and a quick resolution of the dispute is unlikely over the next few months”. This suggests that Moody’s is already expecting this dispute to extend until 2018 and might not want to rush through this downgrade as yet. Having said that, given Moody’s do acknowledge increased risk of uncertainty carrying the risk of deteriorating Qatar’s sovereign credit fundamentals, we believe the risks of a sovereign rating downgrade could nevertheless increase if we do not see a quick resolution (say by the year end) of this dispute. For now, we think Qatar’s extraordinarily high sovereign wealth fund levels should provide some cushion against slowdown in the economic activity. Hence, we expect Moody’s to affirm Qatar’s rating today (in the event of any review).

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