Fitch Ratings (Hong Kong/Singapore): Amid volatile global financial market conditions, and as uncertainty persists over the strength of the global economic recovery, Fitch Ratings has released a new report, ‘Emerging Asian Sovereign Pressure Points’.
The report looks at a number of metrics to assess the potential exposure of emerging Asian economies and their sovereign credit-worthiness to a further sharp deterioration in the global economy and/or heightened stress in the financial system.
The agency stresses that these contingencies do not reflect the agency’s base case.
Growth exposure: Thailand (Long-Term Foreign-Currency IDR (LTFC IDR): ‘BBB’/Stable) combines high exposure to a global slowdown with limited scope for monetary policy stimulus.
By contrast, Indonesia (LTFC IDR: ‘BB+’/Positive) combines a track record of resilience to global economic shocks with the most scope for a policy response.
The “continental economies” of China (LTFC IDR: ‘A+’/Stable) and India (LTFC IDR: ‘BBB-’/Stable) are less exposed to a global growth shock, but have less tolerance for policy stimulus at their current rating levels, based on this analysis.
External financing exposure: Exposure to a sharp deterioration in global market liquidity as judged by an adjusted liquidity ratio (ALR), which incorporates portfolio equity liabilities, appears greater for Indonesia, Korea (LTFC IDR: ‘A+’/Positive) and Malaysia (LTFC IDR: ‘A-’/Stable), and limited for China, Taiwan (LTFC IDR: ‘A+’/Stable) and the Philippines (LTFC IDR: ‘BB+’/Stable).
Emerging Asian exposure to a “sudden stop” in external financing also appears limited, with only Sri Lanka (LTFC IDR: ‘BB-’/Stable) and India running deficits on their basic balances (current account balance plus net FDI inflows).