Asia-Pacific recovery vulnerable to global financial volatility: S&P

Shift in investor sentiment could increase funding costs

Financial market volatility can derail or dampen investment recovery in the Asia-Pacific region despite the region's resilience to global economic weakness so far, says rating agency Standard & Poor's (S&P).

"Changes in global financial risk appetite matter more to regional investment outcomes than changes in real external demand," said the rating agency in its report titled 'Investment Drivers In Asia-Pacific: Global Financial Risk Appetite May Matter More Than External Demand.'

S&P economist Vincent Conti said, "...despite the expected improvement in global growth prospects, the current bout of global risk aversion may temper investment growth in Asia-Pacific."

S&P in the report notes that Southeast Asia's large young labor force economies are more resilient compared to export dependent economies of the region.

"Sudden shifts in global investor sentiment could dramatically influence funding costs through capital flows, possibly affecting the real economy. Moreover, increases in global risk aversion do not necessarily occur in periods of weak global growth," said Conti.