Asia-Pacific credit conditions could Improve in third quarter: S&P

June 20, 2017

HONG KONG - Asia-Pacific's positive fundamentals could lift credit conditions in the third quarter of 2017, as macroeconomic trends and financing availability are improving, S&P Global Ratings says in a reort published today. 

“Stabilising trading conditions are also easing negative pressure in the region's metals and mining sector," says credit analyst Terry Chan.

Nevertheless, tail risks remain for the region's credit markets, led by the potential impact of higher interest rates, particularly as regional issuers continue to borrow in foreign currency, widening their exposure to potential hikes by the U.S. Federal Reserve.

“We consider market reaction to political events as the second risk,” S&P says.

“The possible imposition of country-directed trade tariffs, geopolitical conflicts, and the rise of populist or extremist movements are looming threats.

Risk number three is the potential impact of a property adjustment, given high asset valuations by global markets and ease of financing.

"China's debt overhang is now risk number four, moving from its number two position in the previous quarter," says Chan. "This doesn't mean the risk isn't substantial though. We believe the risk will gradually build up as debt accumulates further."

Rounding off the top-five risks in Asia-Pacific's credit conditions is corporate refinancing, a risk partly tied to the other four risks. www.standardandpoors.com (ATI).