JAKARTA (TheInsiderStories - Moody’s Investors Service said that the negative pressure on the ratings of non-financial corporates in Asia seen during 2016 will likely moderate over the next 12 months.
“Our expectation that the negative rating trend will moderate in 2017 reflects the partial recovery made by commodities prices, the fact that the monetary policy of major central banks — with the exception of the US Fed — will likely stay accommodative, continued solid growth in the US, and growth in China stabilizing at close to the official target,” Clara Lau, a Moody’s Group Credit Officer said in a statement.
“At the same time, several factors will likely lead to uncertainty in the capital markets and could reverse the stabilizing rating trend in 2017,” adds Lau. Moody’s analysis is contained in its just-released report titled “Credit Strategy & Standards: Asian NonFinancial Corporates’ Negative Rating Trend Will Likely Moderate in 2017.” The report was authored by Lau.
Moody’s report points out that at end-4Q 2016, the share of ratings with negative implications — representing ratings with negative outlooks or which are placed under review for downgrade — stood at 29%, the lowest level for the four quarters of the year. However, the result was still higher than the 19% at end-4Q 2015.
The share of ratings with a stable outlook crept up to 65% at end-4Q 2016 compared to the 60% registered over the previous two quarters. Moody’s points out that there are a few factors which will lead to uncertainty in the capital markets and could reverse the stabilizing rating trend in 2017.
The US Federal Reserve raised interest rates in December 2016, and the Fed anticipates three further hikes in 2017; a development which — if it occurs — would have negative implications for corporates in Asia Pacific, such as for companies holding large US-dollar debt without matching cash inflows.
The possibility that the European Central Bank could reduce the scale of its monetary stimulus program in 2017, and the Chinese government’s tightening of capital outflows could also lead to increased volatility in the markets. Moody’s report says that overall, negative rating actions significantly outnumbered positive ones for non-financial corporates in Asia Pacific in 2016, with 148 negative versus 48 positive actions.
By region, China was the main driver of the negative rating actions, accounting for 70 of the total 148. And, by industry, metals & mining companies and property developers each accounted for 22 negative actions. There were two corporate defaults recorded in 2016 , significantly lower than the nine defaults seen in 2015. (*)