Standard & Poor’s says that credit quality is improving in so-called emerging markets, but that there are still risks in these sectors.

The rating agency that in contrast to developed economies, more emerging market firms continue to be listed with a positive bias than a negative one. As of June 30, 16% of rated issuers in the emerging markets were listed either with a positive outlook or CreditWatch with positive implications, compared with 14% at the end of March and 13% a year ago. Meanwhile, the negative bias declined to 14% from 20% a year ago.

It says that the positive bias in emerging markets is being sustained by high commodity prices, which are stoking growth in many markets. But, it notes, whether these conditions will result in actual upgrades will depend on the extent to which economic demand is strengthened and extended to non-commodity sectors.

“Notwithstanding the positive momentum in the outlook distribution, the outlook in general for emerging market credit quality has been called into question by the turnaround in U.S. interest rates, which began with the Federal Reserve raising rates 25 basis points on June 30,” S&P warns.

“A prolonged period of low interest rates in the U.S. benefited emerging markets enormously as investors consciously sought higher yielding securities. The prospect of rising interest rates in the U.S., however, poses the risk that the pace of fund inflows into the emerging markets will decelerate in the coming months, even though the stop-start pace of economic recovery leaves room for extended gains.

“High oil prices are also creating a temporary windfall for oil-producing nations. Conversely, the repercussions of an eventual slowdown in China would be keenly felt among commodity-exporting emerging markets. Varying credit quality prospects by region imply that investors will continue to differentiate selectively.”

Within the emerging markets, much of the positive rating activity occurred in banks and sovereigns in the second quarter. The banking sector recorded six upgrades and one downgrade, while there were five upgrades and no downgrades among sovereigns. All of the banking upgrades affected Asia-Pacific commercial banks.