Eurozone situation main threat to Asia Pacific sovereigns: S&P

 

 

 

The report titled, "Asia-Pacific Sovereigns: A Bit Of Stability In The Sea Of Uncertainty," said risks of instability are still substantial, despite the more decisive actions shown by eurozone policymakers. 

"Reforms that address fundamental imbalances in the currency union are still in the early stages of implementation," said Standard & Poor's credit analyst Kim Eng Tan. "If investors perceive that European politicians are losing the willingness to continue with reforms or if major policy mistakes occur, it may send another financial and economic shock across the world."

Of the 22 rated sovereigns in the Asia-Pacific, Standard & Poor's raised the credit ratings on the Philippines and South Korea during the past six months and revised the outlook on Vietnam to stable from negative. 

"We upgraded the two sovereigns because their credit support improved sufficiently to offset weaker growth prospects in the next few years," Mr. Tan said. "Asia continued to register moderate economic growth despite the intensifying global economic uncertainties." 

India was the only Asia-Pacific sovereign to see a negative rating action during the period; the outlook was revised to negative from stable. In our view, there is a significant chance that this trend could eventually affect political, economic, fiscal or external factors to lower the credit rating on India, Tan said.

He added that Standard & Poor's doesn't expect the positive trend of rating changes of the past six months to continue in the coming 12-18 months. Economic conditions in the developed world and elsewhere remain weak and uncertain. Where credit metrics are already weak in their rating categories, policy mistakes or hesitance could drag sovereign ratings down. 

The announcement of another round of unconventional monetary easing in the U.S. also brings additional risks to some Asia-Pacific economies. Credit growth has been strong in parts of the region over much of the past decade. These economies include Australia, China, Hong Kong, Korea, New Zealand, and Singapore. In some of them, real estate prices have also risen significantly in the period. 

"If inadequate policy responses to additional monetary easing from abroad fuel further financial leverage, the risks to economic and financial stability could mount, and that could damage sovereign creditworthiness," Tan noted.