A credit rating is a measure of the credit worthiness of a government, a public entity, or a private corporation. The credit rating is also used as an assessment of the quality of debt instruments issued by any of these organizations.
Just a month after the Philippines received its first-ever investment grade rating from Fitch Ratings, another credit rating agency gave the country its stamp of approval by bestowing upon the Philippines a BBB- rating, equivalent to a lower medium investment grade.
Standard & Poor’s (S&P), one of the top three credit rating agencies in the world, upgraded the Philippines’ long-term foreign currency- denominated debt from BB+ to BBB-, with a stable outlook. (See definitions of the credit ratings in the article “Moody’s, Fitch, and S&P and what their credit ratings mean“)
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.