Choppy credit conditions in the Asia-Pacific

“We expect conditions to remain choppy in the second quarter because of fears over China’s ability to rebalance its economy, still-weak commodity prices, and capital flows affecting currency exchange rates and credit spreads,” said Standard & Poor’s credit analyst Peter Eastham.
Downgrades in Asia-Pacific exceeded upgrades at a pace of 1.1 per cent in March 2016, measured on a six-month moving average basis, said Standard & Poor’s in another report titled, “Asia-Pacific Credit Outlook the second quarter 2016: Downgrade Momentum Will Continue”. While this is an improvement over the recent peak of 1.6 per cent in January 2016, the ratio is still at levels not seen since the 2008-09 global financial crisis, when it peaked at 2 per cent.
“We expect downgrades and defaults for the Asia-Pacific issuers that we rate to significantly outpace upgrades for the rest of 2016 and into early 2017,” said Standard & Poor’s credit analyst Terry Chan.
The overall net negative outlook bias was 9 per cent in March 2016, even after recent rating downgrades, indicating that the rating transition risk remains significant.
Should China’s GDP growth and commodity prices fall significantly, below our base-case assumptions, we anticipate that the building materials, capital goods, metals and mining, oil and gas, and real estate development sectors would be most affected.