(The following statement was released by the rating agency) LONDON, July 08 (Fitch) European credit investors see more possibility of contagion from emerging market risks via Brazil than other major emerging markets (EMs), according to Fitch Ratings’ latest senior investor survey. Seventy-six percent of respondents to the survey, which closed on 2 July, selected Brazil when asked to choose two countries from a list of five where they felt the wider contagion threat of EMs facing imbalances, political challenges, and rising US rates was most acute. This was twice as many as Russia (38%). Thirty-six percent selected China and 30% Turkey. Just 7% identified an acute risk of contagion via India. EMs face various challenges heading into 2H15. Commodity prices have fallen, an approaching Fed rate rise points to a less favourable external financing environment, and some EMs face structural growth challenges. Brazil (BBB/Negative) and India’s (BBB-/Stable) sovereign credit profiles are cushioned from external shocks by robust international reserves, and the authorities in both countries have taken policy measures aimed at reducing imbalances. Reliance on portfolio inflows to finance the current account deficit is not significant in either country. The front-loaded macroeconomic adjustment programme adopted by Brazil’s Rousseff administration in its second term could gradually help improve policy credibility, confidence, and investment prospects. But weak political and economic backdrops (we forecast a GDP contraction of 1.5% this year) may hinder implementation. Meanwhile, Latin American non-financial corporates, led by those in Brazil, have significantly increased their dollar borrowing while US rates have been low, increasing their exposure to a rising dollar. As the Central Bank of Brazil has tightened policy and allowed the real to depreciate, Brazilian issuers face rising internal and external interest rates during a recession. Forty-six percent of our 2Q15 survey respondents think EM corporates will face the greatest refinancing challenge over the next 12 months – more than twice the next-highest category (EM sovereigns, with 20%). We think India has made more tangible progress in reducing its exposure to Fed-driven market volatility since the ‘Taper Tantrum’ two years ago. Foreign-exchange reserves have grown and are high in terms of current exchange payments relative to peers. The current account remains in deficit, but has narrowed, initially helped by temporary gold import curbs, but also due to the fall in international oil prices and lower inflation reducing investment demand for gold. Structural reforms and the resulting pick-up in investment support India’s growth outlook, and we forecast growth to accelerate to 8.1% in FY17. But Fed tightening will not be risk-free for India, due to the possibility of large foreign outflows from its debt and equity markets. Fitch’s 2Q15 survey represents the views of managers of an estimated EUR7.8trn of fixed-income assets. We will publish the full results later in July. Contacts: Monica Insoll Managing Director Credit Market Research +44 20 3530 1060 Fitch Ratings Limited 30 North Colonnade London E14 5GN Shelly Shetty Senior Director Sovereigns +1 212 908-0324 Thomas Rookmaaker Director Sovereigns +852 2263 9891 Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Related Research US Rate Risks to Large Emerging Markets Have Shifted Since the Taper Tantrum here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM‘. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.