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Global Corporate Upgrades Have Surpassed Downgrades in 2021

Rating performance in the global non-financial corporate sector is improving, with the number of issuer upgrades exceeding downgrades in January-July 2021, Fitch Ratings says. Most of these upgrades are not reversals of rating actions taken in 2020, when there was a record deterioration in corporate ratings, with the highest number of downgrades in 20 years.

Pandemic- and lockdown-related pressures led to the downgrade of nearly 20% of ratings in Fitch’s corporate portfolio in 2020, with 7% of issuers downgraded by multiple notches. However, as pandemic-related restrictions have relaxed and as many economies return to growth, the most severe credit pressures have abated and the number of positive ratings actions has started to rise. The corporate portfolio is now showing a higher number of upgrades than downgrades for the first time since 2017.

Only a small share (22%) of upgrades so far in 2021 have been reversals of rating actions in 2020, while most rating improvements have been driven by issuers’ resilient financial performance during the pandemic or their more conservative approach to funding. Upgrades in developed markets are a key contributor to the growing number of positive rating actions. The ratio of corporate upgrades to downgrades in developed markets was 1.3x in January-July 2021, while the balance was almost even in emerging markets. Rating pressures in developed markets pushed the overall number of downgrades to a record high in 2020.

Natural resources and commodity sectors, including oil and gas companies, have benefited from healthy commodity prices that recovered quickly after the initial shock at the start of the pandemic. The increase in working from home has spurred the need for house extensions and renovations, supporting demand for building materials. The pandemic has also increased demand for healthcare products and services. These industries have recorded more frequent upgrades so far in 2021 than most other sectors.

Source: Fitch Ratings

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