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Moody's Investors Service says that its Asian Liquidity Stress Index (Asian LSI) stabilised in April and now stands at 15.3%, compared with 15.5% in March.

The Index, which increases when speculative-grade liquidity appears to decrease, is near its highest level since October 2010. However, it remains well below the high of 37% recorded in 4Q2008 during the financial crisis.

In absolute terms, 15 of the 98 issuers in the speculative-grade portfolio demonstrated weak liquidity as at end April compared with 15 of 97 issuers in March.

"In April, the liquidity sub-index for Chinese speculative-grade companies stood at 15.6%, down from the high of 18.6% in March," says Laura Acres, a Moody's Vice President and Senior Credit Officer. "While there was some improvement for the liquidity of Chinese property companies, it remains of note that almost one in four of such companies have weak liquidity."

As of end-April 2012, the 12-month trailing default rate for speculative-grade names was 2.63%, which compares to no defaults in 2011.

The correlation between weak liquidity and default remains high. Some 93.3% of Asia-Pacific companies with the lowest SGL score (SGL-4) are rated B1 and below, compared with 86.6% in March.

In April, the downgrade to upgrade ratio moderated with just one downgrade compared to one upgrade after three clear quarters of downgrades exceeding upgrades.

There were also four negative outlook changes and one rating was put on review for downgrade.

"As such a strong negative bias remains with almost 40% of the speculative-grade portfolio having a negative outlook or being on review for downgrade," adds Acres.

During Q1 2012 in Asia, concerns about euro area sovereign debt and a more general economic slowdown seemed to ease as markets reopened and investors showed appetite for Asian risk. However, more recently, a level of caution has prevailed and there remain several deals in the market yet to complete.

Moody's still expects a moderate erosion of liquidity this year, as a tight credit supply in China flows through to the wider corporate space.

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