Asian Corporates Resilient to Growth Slowdown: Moody’s

Asia and its corporate sectors will be resilient to global macroeconomic challenges in 2015, with less vulnerability to external shocks than other emerging economies and with sound fundamentals that compare well with many regions in the world, says Moody’s.

“As global growth remains subdued with brighter prospects in the US offset by lacklustre growth in the euro area and Japan, and China’s ongoing slowdown, Asia’s resilience will become increasingly evident,” says Michael Taylor, a Moody’s chief credit officer.

Global challenges for 2015 include the US Federal Reserve taking the first steps to normalise monetary policy, sustained low commodities prices and China’s rebalancing. At the same time, Asia is supported by healthy external vulnerability metrics and the policy space to support growth through accommodative domestic monetary and fiscal policies, says the credit ratings agency (CRA).

While Moody’s expects capital inflows to Asia Pacific to moderate in 2015, offshore borrowing costs will remain below historical norms, reflecting Asia’s sound fundamentals.

The region’s status as a net oil importer and the opportunity for governments to pare back subsidies mean that falling crude prices will be credit positive for much of the region.

However, Moody’s identifies four key risks for the year ahead; a deeper-than-expected property downturn in China, high leverage in certain sectors, renewed eurozone concerns and a spike in global financial market volatility.

A 10% fall in property sales volumes, accompanied by a 10% fall in prices, could shave up to 2.25 percentage points off Moody’s baseline growth assumptions for China, says the CRA.

Elevated household debt to gross domestic product (GDP) ratios in certain areas in Asia – Malaysia, Thailand, and Singapore, among others – could become a concern if interest rates spike during the year, notes Moody’s. The CRA also points to the rising leverage in the corporate sector throughout much of the region.

Elsewhere, renewed concerns in the euro area could undermine investor confidence and shrink demand – currently 10% of the total – for Asia exports.

Finally, any of the above factors might in turn lead to a spike in global financial market volatility, which would have a negative impact on the cost of credit given the close correlation between the VIX index and Asian credit spreads.

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