It was volatile overnight in the global share market. The S&P 500 Index (INDEXSP: .INX) declined by 1.4%, which was one of the worst declines this year. What happened? The US Government debt was downgraded in terms of its credit rating and this has caused the S&P/ASX 200 Index (ASX: XJO) to drop as well.
Why does it matter?
The US government debt is the biggest bond market and it's meant to be the safest and most reliable option for bond investors.
A lower credit rating may increase investor uncertainty surrounding the US and may lead to the US debt being more expensive.
If the world's biggest economy is seen as less creditworthy, it could have widespread ramifications.
What did Fitch say?
Richard Francis spoke to CNBC earlier, he's the co-head of the Americas sovereign ratings for Fitch. Francis said:
This is a steady deterioration we've seen in the key metrics for the United States for a number of years. In 2007, general government debt was less than 60% and now it's 113%, so there has been a clear deterioration.
Furthermore, we're expecting fiscal deficits to rise over the next three years and we expect debt to continue to rise over the next three years.
Given the high level of the debt, given the increasing deficits that we're expecting, and given the kind of deterioration in governance and unwillingness to really tackle these issues, we don't think that's consistent with the AAA anymore.
Fitch also doesn't like the fact that there has been "constant brinksmanship" by Republicans and Democrats.
Should this matter for ASX 200 investors?
Firstly, there's the obvious point to say that the ASX 200 is predominately about Australian businesses that operate in Australia, not US companies.
Volatility in the global share market can affect ASX 200 shares, but what's happening in Australia is more important for the ASX 200.
The CEO of JPMorgan, Jamie Dimon, certainly doesn't think it matters much what Fitch has done. Dimon said to CNBC:
It doesn't really matter that much because it's the market, not rating agencies, that determines borrowing costs.
He also said that it was "ridiculous" that some countries had a higher debt rating when they depend on the US for stability and its military:
To have them be triple-A and not America is kind of ridiculous. It's still the most prosperous nation on the planet, it's the most secure nation on the planet.
He suggested that the US should remove the debt ceiling because it's used by both political parties in ways that create uncertainty for markets.
In my opinion, it shouldn't affect things much for ASX 200 investors. The index is only down by 0.7%, which is a decline but it's still up over the past month. The ASX 200 is also up 5% in 2023 to date.
For me, any declines are an opportunity to buy businesses at a cheaper price.
