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In defence of Moody’s

Moody’s move to junk Turkey's rating last Friday was met with howls of disdain from investors after they believed the agency had hinted there would be no downgrade. But no diligent fund manager should be moving positions based on a throwaway comment from a single analyst.

“They completely changed their rhetoric,” whinged one London-based EM investor, becrying the fact that he had adjusted his portfolio after a Moody’s analyst was quoted saying the effect of the attempted July 15 coup in Turkey had now dissipated.

Even MUFG was led up the garden path, publishing a note saying that “recent comments by Moody’s on Turkey… led to a shift in expectations towards an affirmation of the current Baa3 rating.”

The timing of the statement was unfortunate, particularly in the case of Turkey which has been under intense scrutiny since Moody’s said it needed extra time — 90 days in fact — to fully assess the impact of the attempted rebellion on the country’s credit rating.

Calls for a blackout on analysts speaking to the press ahead of such an important decision are not amiss.

But investor calls that they were misled are exaggerated. Although the failed coup certainly informed Moody’s decision, it did not drive it. The focus was the erosion of Turkey’s economic resilience and increasing balance of payment pressures that were evident before July 15.   

Regardless of whether they agree with Moody’s assessment — and many don’t — investors should be doing their own work, particularly dedicated EM investors who are not constrained by ratings. Turkey may have a negative rating, but its fundamentals have not changed since last week. 

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