As explained in the article Credit Ratings by S&P, Moody’s and Fitch Ratings, a “credit rating” is a measure of the ability of an entity, whether a company or a sovereign state, to repay its debt. It shows the quality of loan instruments issued by the borrowing entity and whether these debt instruments can be repaid on time.
Search engine giant Google recently announced it is purchasing Motorola Mobility Holdings, Inc., the former Mobile Devices Division of Motorola, for $12.5 billion. According to Google, the move was meant to protect its Android operating software from intellectual property lawsuits.
But was it a good move?
On August 4, Thursday, US stocks suffered the worst one-day sell-off in two years, with the Dow Jones Industrial Average (DJIA) falling 4.31% and the Nasdaq Composite Index losing 5.08% of its value.
A few hours after US stock markets closed, Philippine stocks followed suit and the benchmark Philippine Stock Exchange Index (PSEi) tumbled 1.4% on Friday, August 5.
My friends and I, together with other investors around the world, were surprised to see such panic and sell-off. A fall is generally expected, given the lingering uncertainty in the US economy partly brought about by the eleventh-hour sealing of the deal regarding the US debt ceiling crisis. But a steep 4%+ decline in the US is unprecedented, considering there were no other major financial news spreading in the market.
Apparently, we were wrong. It looked like several investors already got the leak that credit rating agency Standard & Poor’s (S&P) was about to downgrade the United States’ credit rating.