US policy doubts top credit risks
IMPACT of the US administration’s expected protectionist trade policies on Asia-Pacific exports, business activities, and issuer revenues has risen to become the top credit risk for this region, according to S&P Global Ratings.
S&P yesterday published a |report titled “Asia-Pacific Credit Conditions Q2 2017: Top Risk Is Uncertain US Trade Tax Policy”.
“The risk of the new US administration adopting a protectionist trade stance is high and increasing,” said S&P credit analyst Terry Chan.
“Potential import tariffs and an export tax regime from the US will weigh on trade and exports in the Asia-Pacific region.”
Meanwhile, the ever-increasing debt level of China’s private and state-owned enterprises is intensifying risks due to weakening borrower credit quality. A disorderly de-leveraging of China’s outsized and growing debt burden, in particular corporates’, would undermine market confidence, loan performance, and asset and commodity prices.
On the other hand, financing conditions have eased since a yield spike and currency volatility after the US presidential election. However, the risk of capital outflows remains, pending the implementation of the US trade policy.
After some cooling off in early to middle 2016, property prices in some key Asia-Pacific markets |such as Australia, mainland China and Hong Kong appear to be |surging again. This indicates that the impact of various administrative measures taken by the authorities |in 2016 to ease property pressure has largely passed. Consequently, risks for further adjustments still exist.
Another risk among the top five economies in the region is the refinancing task of Asia-Pacific companies. Although China in particular has a large number of bonds maturing in 2017, most are from domestic sources, which mitigates some of the risks.
The net negative ratings outlook bias of the pool of Asia-Pacific issuers that S&P rates improved marginally to minus-14 per cent |in February from minus-15 per cent last October, according to another article published yesterday, “Asia-Pacific Sector Outlook Q2 2017: Downgrade Risk Remains High”.
The negative bias reflects S&P’s view that Asia-Pacific issuers have yet to shake off the effect of the region’s recent economic slowdown despite expectations of growth stabilising this year.
The average rating of the Asia-Pacific pool remains at “BBB+”.
