A Chinese Competitor In Bond Ratings?

In my morning news sweep, I came across an interesting little tidbit about a Chinese bond rating firm. The company is Dagong Global Credit Rating, and according to its website, it is the founder of the native Chinese bond rating industry. With 500 employees, it would be tiny compared to Moody's (NYSE: MCO), McGraw-Hill's (NYSE: MHP) Standard and Poors, and Fitch, but then it does not have nearly the same breadth of operations at this point.

What brought this to my attention was a piece on Al-Jazeera's English language website regarding Dagong's view of sovereign credit. In Dagong's world, the AAA countries of the world are Norway, Australia, Denmark, Luxembourg, Switzerland, Singapore, and New Zealand. China and Germany score as "AA+", with the U.S. and Saudi Arabia just behind at "AA". Interestingly, Spain, South Africa, Estonia, Russia, Poland, Italy, Portugal, and Brazil all pull the same "A-" rating. Mexico and India get a "BBB", while Greece, Turkey, and Iceland share a "BB", Vietnam gets a "BB-" and Ecuador is the bottom at CCC.

A lot of things stand out here.

First, Dagong gives just 6 local currency AAA ratings; Moodys gives 14  and S&P and Fitch give 13. Second, Dagong is more positive on China, Saudi Arabia, Russia, Brazil, and India, but more negative on Canada, the US, UK, and France.Now, I happen to think that Mexico, Turkey, Poland, and Vietnam are under-rated, but Dagong is consistent with the other agencies on those, so I do not have a particular bone to pick with them.

I really cannot speak to how independent Dagong may be (is it a coincidence that Dagong likes Saudi Arabia and China very much wants to be on solid terms with the Kingdom?), as I did not even know about them five hours ago. Still, I am impressed at first blush with the logic and assumptions that underlie the work (at least as described in the report). What's more, I really think the bond rating world needs fresh blood and new opinions, so any credible analysis that shakes up the status quo is a welcome arrival for this writer.

I doubt individual investors will be able to harness this research for their own purposes, but I am glad to hear that new voices are speaking out. We have seen the limitations of Moody's, S&P, and Fitch amply demonstrated over the past few years, so maybe a new way of approaching the problem is what we all need.