Moody's: Stable rating trend for Asia-Pacific corporates to continue; but risks evident

Moody's Investors says that the stable rating trend for Asia-Pacific nonfinancial companies is likely to continue in 2018, based on expected ongoing broad-based economic growth in the advanced and emerging economies, while monetary tightening by central banks will be gradual, and refinancing risk manageable.

"However, an acceleration in trade protectionism in the US and volatility in the financial markets could have a severe impact on the global and Asian economies, undermining the stable credit environment," says Clara Lau, a Moody's Group Credit Officer.

"The planned tariffs and trade dispute between the US and China raise the risk of setting off an escalating process of retaliatory protectionist measures. The resultant uncertainty may pose risks to trade-dependent economies in Asia, resulting in a fall in trade and a pullback in sentiment and confidence, affecting the stable outlook as a result," adds Lau.

 

Currently, Moody's expectations are that the stable rating trend for nonfinancial corporates in Asia-Pacific is likely to continue in 2018, as the share of ratings with negative implications was at a low 11% at the end of first quarter, while the share of ratings with a stable outlook stayed high at 83%, the second consecutive quarter above 80%.

The stable rating trend for Chinese non-financial corporates is expected to continue despite moderate GDP growth and corporate deleveraging reforms. The Chinese corporate portfolio's share of ratings with negative implications dropped further to 14% at the end of the first quarter of 2018 and the share of ratings with stable outlooks went up to 81%.

Positive rating actions materially outpaced negative actions in the first quarter for Asia-Pacific. There were 23 positive and eight negative actions taken on nonfinancial companies in the first quarter of 2018.

However, Chinese property developers faced more challenges compared with other sectors due to expected slowdown in national contract sales as well as large refinancing needs. The share of ratings with negative implications was at 25% at the end of the first quarter of 2018.

The stable rating trend for Japanese corporates is also likely to continue, supported by a modest expansion of the economy -- with contributions from both domestic and external demand -- and the continuation of a monetary policy to reflate the economy to achieve the country's 2% inflation target. The share of ratings with negative implications fell to 15% at the end of first quarter of 2018 , the second consecutive quarter the share was below 20%.

The stable rating trend for Australian/New Zealand corporates stays underpinned by improved domestic economic conditions on the back of continued strength in the global economy and low interest rates.

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