Moody's: Asian Liquidity Stress Index declines to 22.3%

Moody's Investors Service says that its Asian Liquidity Stress Index declined to 22.3% in August from 23.2% in July.

The decline, the third in as many months, came as the net number of rated high-yield companies with Moody's weakest speculative-grade liquidity score (SGL-4) decreased to 27 from 29 and the number of rated high-yield companies decreased by four to 121.

"The index -- which increases when speculative-grade liquidity appears to decrease -- remains well below the record high of 37.0% reached during the fourth quarter of 2008 amid the global financial crisis," says Annalisa Di Chiara, a Moody's Vice President and Senior Analyst.

 

"It is a bit above the index's long-term rolling average of 20.2% and its trailing 12-month average of 21.8%," adds Di Chiara.

The liquidity sub-index for Chinese speculative-grade companies fell to 20.3% in August from 25.0% in July, reflecting a combination of rating movements and withdrawals rather than any intrinsic improvement in underlying corporate liquidity. And the number of high-yield Chinese companies decreased to 64 from 68. Meanwhile, the number with an SGL-4 score declined by four to 13.

China's high-yield property sub-index also declined, to 12.8% from 19.5% and the Chinese high-yield industrial sub-index also declined to 32.0% from 33.3%.

By contrast, the Indonesian sub-index jumped to 12.0% from 8.0% in July as the number of Indonesian companies with an SGL-4 score rose by one to three while the total number of high-yield Indonesian companies remained at 25.

The trailing 12-month high-yield default rate for Asian (ex Japan) corporates at end-July was 4.1%, up from 2.2% at end-2013. Moody's Credit Transition Model anticipates the default rate for this sector to peak at 4.3% in September and at end-2014 slightly lower at 3.3%

The rise in the high-yield default rate -- as well as the forecast for 2014 -- from 2013 reflects the slowing of the Chinese economy as it rebalances and credit remains tight.

At the same time, the ASEAN economies, particularly those that are commodity reliant, are vulnerable to the growth correction in China, a major consumer of commodities/resource-related products. These challenges are expected to continue for the rest of the year.

Moody's had assigned speculative-grade ratings to 121 non-financial companies in Asia (excluding Japan) covering $65 billion of rated debt at end-August, versus 125 companies and $68.6 billion of rated debt at end-July.

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