Moody's Investors Service expects the stable credit trend for Asia-Pacific non-financial corporates to continue through 2018, but downside risks, including an intensification of the trade tensions between the US and China, are on the rise.
"A further escalation of trade tensions would not only harm growth in both China and the US, it would also spill over to trade-dependent Asian economies, especially large exporters of "intermediate goods" to China, where the goods are assembled into finished products for shipment to the US," says Clara Lau, a Moody's group credit officer.
"The trade dispute also comes at a time when Asian countries have been experiencing capital outflows and weakening currencies as a result of a strengthening US dollar and monetary policy normalisation in the US," she said. "These factors could cause volatility in the financial markets and constrain the availability of liquidity."
Moody's conclusions are contained in a just-released report, "US-China Trade Tensions Cloud Outlook for Asian Companies' Stable Credit Trend".
The current expectation of a stable credit trend is supported by Moody's expectation of sustained stable global growth and the continued measured pace of monetary policy normalisation in the major economies for the rest of 2018.
The outlook for the G20 advanced economies is positive, with a growth forecast of 2.3% in 2018. Moody's expects US growth to outpace that of other advanced peers at 2.7%.
Moody's predicts an upswing in growth for emerging-market countries, with G20 emerging economic growth forecast at 5.2% by the end of 2018.
In China, economic growth will likely decelerate slightly to 6.6% in 2018 from 6.9% in 2017, amid central government efforts to reduce the leverage of financial institutions and corporates to contain financial risks.
Domestic demand in China is favourable in the near term, but escalating US-China trade tensions, tightening onshore liquidity, regulatory reform of state-owned enterprises and a less buoyant property market may undermine growth and the prevailing stable credit conditions.
The share of ratings with a stable outlook for non-financial companies in Asia-Pacific was 86% at the end of the second quarter of 2018, the third straight quarter with a level over 80%, while the share of ratings with negative implications dropped further to 9%.
The rated portfolios for Asia, Japan and Australia have all exhibited a similar trend, and the share of ratings with stable outlook was over 80% for all geographic areas.