S&P did not limit its focus to Russia on Friday. The rating agency noted that China shipbuilding, metal, mining and building material companies are vulnerable to defaults.
"A slowing economy and tough operating conditions in some leveraged industries facing cyclical downturns and overcapacity will lead to more missed payments" noted the agency.
However, on the positive side, S&P does not see a "Lehman moment" because banks are predominately funded with retail and business deposits. However, it cannot rule out distress and credit losses over the next couple of years. Markets can expect Beijing to continue to support the financial system (especially banks) at least until authorities can administer orderly closings of troubled entities.
Last week's Q1 GDP report from China was significant, it not only revealed a slowdown in GDP growth to +7.4%, but also indicated that economy wide inflation slumped further towards outright "deflation." There is a fear that deterioration in Chinese economic data will lead to exporting deflation via unavoidable Chinese currency devaluation.
The RMB is ending the week on a sour note, extending losses despite the PBoC setting the yuan fix stronger for the third consecutive session. At one point during Friday's intraday session, the yuan happened to fall to its lowest level in 16 months. The central parity is set at 6.1576 vs. Thursdays 6.1589 (offshore NDF's 6.2669). It seems that the PBoC is deliberately setting the rate higher to perhaps give the perception that they are not intently weakening the yuan. Dealers still expect the Yuan to remain weak in Q2 on concerns of China's slowing economy.
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