Fitch Ratings downgraded the sovereign ratings of Hungary (to BBB from BBB-plus), Bulgaria, Kazakhstan (by one notch to BBB-, the lowest investment-grade level) and Romania (by two notches to BB-plus from BBB) on Monday while warning that the ratings of South Korea, South Africa, Russia and Mexico are also in jeopardy.  European Union members Hungary, Romania, Bulgaria and the Baltic states “may not be able to handle their large foreign debt burdens, which could spark financial crises,” Fitch said, adding that problems in advanced economies “triggered extreme volatility in emerging market asset prices” and prompted “liquidity strains”.

It lowered its outlook on South Korea, Mexico, Russia and South Africa to negative from stable, while that of Chile and Malaysia were cut to stable from positive.

Let me preface this post by saying, I don’t really care too much about the quarterly earning reports for some of the companies I hold, Mechel (MTL) is much like Petrobras (PBR) and Vale (RIO) – while I realize the lemmings in the market will overreact one way or the other as if the world is ending or mermaids and unicorns have arrived based on a few cents here or there every 90 days, I am indifferent. These are very long term plays, and my positioning in them has more to do with technical patterns at any moment; rather than any earnings hit or miss or any 90 day period. To that point, I didn’t even realize Mechel reported today until a reader let me know – it will be part of the portfolio for a very long time – in fact when …

That is a chart of the US dollar versus the Romanian leu.

Romania is a deficit country that relies on foreign investment, really it is at the mercy of foreign investment. In fact foreign investment is vital throughout the region. The only country nearby that might be in generally rougher shape is Latvia, but the lat, as it is known, has only weakened by about 1% compared to almost 10% for ron.

This article from MarketWatch gives a good recap of what is going on including some detail about a recent report from S&P that says Romania, Latvia, Iceland, Bulgaria, and Turkey are most vulnerable to adverse market conditions. The overnight rate in Romania is 7% and has been heading lower since February.