(Bloomberg Gadfly) -- Everyone who covers emerging markets has heard the mantra: Yes, there's a lot of debt but, unlike the late 1990s, sovereign balance sheets are fine. Corporations are the ones to worry about, and they are hardly ever sources of systemic risk.
That may have been true five years ago. It isn't any longer, if the companies that specialize in assessing credit strength are to be believed. Fitch Ratings, Moody's Investors Service and S&P Global Ratings have taken 3.1 times as many negative actions as positive on sovereign and government-related bonds from emerging markets this year. The last time the ratio was this high was in 1998, in the middle of the Asian financial crisis.
In absolute terms, the number of negative actions is the highest ever. That partly reflects the fact that more emerging-market government entities have international bonds and, therefore, credit ratings.
Credit folks often say that ratings are a lagging indicator, so perhaps the worst is already behind us. It seems that's not the case. Of the 134 sovereigns rated by Moody's, 26 percent have a negative outlook, according to a recent report -- the highest proportion since 2012. Most of those carrying the negative tag are emerging markets. That suggests a slew of downgrades is on the way.
South Africa received a reprieve on Friday as S&P Global Ratings kept its assessment unchanged, following speculation that the nation would be cut to junk. Still, the list of so-called fallen angels, which have gone from an investment grade to junk, among emerging market sovereigns has gotten long over the past two years.
Even if there are no downgrades, there will still be pain for bondholders. As recently as 2015, Brazil sported the equivalent of a BBB- score (the lowest investment grade) from all the three major companies. In the months leading up to its downgrade to junk, the average yield premium on its dollar notes more than doubled, causing big losses to international investors.
When a sovereign defaults, there's a domino effect of companies, private and state-owned, that follow. For once, S&P, Moody's and Fitch may be giving investors early indications of what to expect. The message is clear: Developing nations are no longer doing that well.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.