Asia-Pacific Sovereign rating trends for 2018 published by S&P

January 12, 2018

SINGAPORE - Most Asia-Pacific sovereign ratings are likely to remain unchanged in the next one to two years, S&P Global Ratings said in a report released today. "All but two of our sovereign ratings in the region currently record a stable outlook,” S&P said. “Although economic growth rates this year are likely to be lower than 2017's, our current real GDP forecasts are mostly stronger than our 2018 growth forecasts made a year earlier.

“The better numbers since last year reflect stronger external demand. For this reason, export-oriented economies such as Hong Kong, Malaysia, and South Korea, saw the largest positive revisions in growth forecasts.
“Nevertheless, abrupt capital outflows remain a key risk to regional sovereign rating support, given that sharp asset price corrections are likely to accompany a large withdrawal of funds.
“If investor confidence weakens sharply to cause a steep decline in real estate prices, this could affect several Asian economies negatively.”
The S&P report said risks associated with the high level of corporate debt in China could stabilise in the near future if the Government follows through with its deleveraging policy.
"Since early 2017 at least, Chinese policymakers have been more vocal about the threat to financial stability that strong credit growth over the years poses," said S&P Global Ratings credit analyst, Kim Eng Tan.
“After the Communist Party congress in October last year, policymakers have also signalled a greater focus on the quality, rather than speed, of
economic growth."
Tan said financial regulators in China are tightening restrictions on financial institutions as well. “The pace of credit creation, especially in the State-owned enterprise sector, could moderate in the next few years as a result,” he said.
“This benign scenario may not pan out if Chinese economic growth slows sharply.
“This could happen if events such as an unexpected military conflict on the
Korean peninsula or a significant deterioration of U.S.-China trade relations put the Chinese economy under intense pressure.
“In this scenario, policymakers in China may turn to credit-driven growth to support the economy again.
“Disruptions to international trade and the elevated risk aversion that would follow these events would also hurt sovereign credit support across much of the Asia-Pacific and beyond.” (ATI).