Moody’s Investors Service expects the stable rating trend, which was evident for Asia-Pacific non-financial companies in 2017, to continue in 2018.
“The expectation reflects steady corporate earnings growth, supported by the expectation of continued steady momentum in economic growth for the global and Asian economies, the gradual normalization of monetary policies by major central banks, and the continued availability of ample near-term liquidity,” says Clara Lau, a Moody’s Group Credit Officer.
“However, several downside risks could destabilise this trend, including the escalation of geopolitical conflicts on the Korean peninsula, a rise in trade protectionism which would dampen the growth of export-oriented Asian economies, and financial market volatility arising from a faster-than-expected series of interest rate increases,” says Lau.
Moody’s conclusions are contained in its just-released report, “Credit Strategy & Standards: Asia-Pacific non-financial companies credit trend will remain stable in 2018”.
Moody’s forecasts that G-20 growth will be slightly above 3% in 2018, up from 2.5% in 2016 and moderately above the outturn for 2017. At the same time, G20 emerging market countries are expected to grow at 5.4% with China’s growth moderately decelerating to 6.6% in 2018.
The gradual normalisation of monetary policy by central banks will also support companies’ access to liquidity. Moody’s expectation of a cautious monetary tightening in the major economies – such as the US and the EU – will keep corporate borrowing costs manageable and support their liquidity.
The debt maturity and subsequent refinancing needs of Asian corporates in 2018 will also be manageable. Furthermore, the buoyant bond market evident in 2017 allowed many Asian companies to issue debt for refinancing and/or investments. In 2017, bond issuance was $34.5 billion, the all-time strongest rated issuance level for Asia.
For Asia (excluding Japan and Australia), the share of ratings with stable outlooks at the end of 2017 had increased to 80% from 60% at the end of 2016, while those with negative implications had decreased to 14% from 33% at the end of 2016. For Moody’s Japan portfolio, ratings with a stable outlook rose to 82% at the end of 2017 from 66% at the end of 2016. For Australia, ratings with a stable outlook remained high at 84%.
Total negative rating actions (excluding non-credit driven actions) of the Asia Pacific corporate portfolios were almost at par with positive actions in 2017, with 68 positive and 71 negative actions. Moody’s adjusted rating trend tracker was 1.0x in 2017, notably higher than 0.3x in 2016.