Moody's: Asian corporates will see steady earnings growth in 2018

Moody's Investors Service says that steady economic expansion and corporate earnings growth will underpin the stability of credit quality for corporates in Asia (ex-Japan) during 2018, while refinancing requirements will also be manageable.

"Healthy economic growth in the Asian and global economies will support steady earnings growth for Asian corporates, which in turn will improve their financial leverage," says Chris Park, a Moody's Associate Managing Director.

"Furthermore, the gradual normalization of monetary policy will support the near-term liquidity needs of corporates in the region," says Park.

Currently, Moody's has stable outlooks for the key sectors in the region: China property, Asian steel, Asian refining and marketing, Asian telecom, and Asian power. Some 88% of investment-grade companies and 68% of non-investment grade companies had stable outlooks at end-October 2017, up from 63% and 55% a year ago.

 

"In terms of major macro themes, Moody's expects that G-20 growth will be slightly above 3% in 2017 and 2018, up from 2.5% in 2016, while China's GDP growth will slowly decelerate in 2018 as less policy stimulus is provided," says Park.

The number of negative rating actions in Asia will also decline on these healthy macro conditions and stable liquidity.

"However, a potential protectionist turn in US trade policy could pose risk to trade-reliant economies," says Park.

Further downside risks include military confrontation on the Korean Peninsula, causing the loss of production in Korea and disruptions in the region's supply chains; and a significant deceleration in China's growth because of ineffective reform measures and the knock-on effects for Asian corporates.

On the other hand, upside risks include China's growth accelerating on major stimulus programs, boosting regional economic growth and corporate earnings; and stronger-than-expected growth in the US and EU, together with limited disruption from US interest rate normalization, leading to increased exports and earnings for Asian corporates.

Moody's summarizes its outlook for the corporates in each major Asian economy as follows:

Chinese corporates: GDP growth of 6.6%, operating-efficiency gains and stable commodity prices will support moderate revenue and cash flow growth.

Indian corporates: Credit profile improvements will continue on healthy earnings growth, underpinned by solid economic growth and increased production capacity.

Indonesian corporates: Earnings growth will moderate in 2018, following a recovery in 2017, and capital spending will increase with healthier balance sheets.

Korean corporates: Steady earnings and manageable capital spending will keep financial leverage broadly stable .

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