Moody's: APAC (ex China) non-financial corporates can withstand China GDP slowdown

Moody's Investors Service says that most of the non-Chinese, non-financial corporates it rates in Asia Pacific can withstand the impact from China's GDP slowdown, supported by their businesses outside of China and existing financial cushions.

Most exposed to China are corporates in the metals and mining, coal, oil & gas, steel, chemical, auto, technology and agriculture sectors, says Moody's.

"The metals and mining sectors are the most exposed to weaker Chinese demand, in terms of export volumes and the knock-on effect of lower prices," says Vikas Halan, a Moody's Vice President and Senior Credit Officer.

"The coal, oil and gas, steel, and chemical sectors also have indirect exposure via the impact of weaker demand on prices," adds Halan. "And slowing Chinese demand will pressure revenues for auto and semiconductor manufacturers."

 

Moody's report groups sectors in the region into three categories based on the proportion of rated companies with revenue exposure to China. The report excludes companies based in China and those that conduct nearly all of their operations in China.

Corporates with modest revenue exposure to China are those in the business and consumer services, gaming, manufacturing, port, real estate, retail, shipping and trading sectors, says Moody's.

And exposure is low for airports, and the homebuilding and building materials, telecommunications and utility sectors, as the companies in these sectors tend to derive most of their revenues from the countries in which they operate.

Overall, Moody's expects limited impact on the non-Chinese, non-financial corporates it rates in Asia Pacific, as most have financial cushions to absorb any weakening of their credit quality that results from a slowdown or decline in revenues.

In addition, many of the exposed companies will receive revenue support from their businesses outside China.

Moody's has slightly revised its GDP growth forecast for China in 2016 to 6.3% and maintained its forecast of 6.8% for 2015. In subsequent years, the growth is likely to slow towards 6.0%, says Moody's.

While this represents a significant slowdown over prior years, the growth rate remains well ahead of most other developed countries, and further policy support is likely to ensure that the economic slowdown remains gradual.

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