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Moody's Investors Service says that its Asian Liquidity Stress Index (LSI) rose in December, with 9.3% of its rated speculative-grade portfolio demonstrating inadequate liquidity compared with a historical low of 9.0% in November.

"At the same time, liquidity remains healthy. The index remains below the 2011 high of 13% recorded in January, and is well below the 37% posted during Oct-Dec 2008, or at the height of the global financial crisis," says Laura Acres, a Moody's Vice President and Senior Credit Officer.

"Furthermore, the increase in December reflects a decrease in the number of rated companies rather than a substantive deterioration in overall liquidity," says Acres.

The index measures the percentage of companies with the lowest speculative-grade liquidity (SGL) rating (SGL-4), and increases when corporate liquidity appears to deteriorate.

During Oct-Dec 2011, the speculative-grade default rate rose to 1.56% after falling to zero during July-Sep, and is likely to increase in 2012 as weaker companies struggle to refinance pending maturities at rates they can afford.

The report notes that access by speculative-grade companies to debt markets remains choppy as concerns over the fallout from Europe's sovereign-debt crisis and the potential for slower-than-projected economic growth weigh on investors.

Additionally, overall speculative-grade corporate liquidity could erode modestly as the ongoing tightening of credit in China spreads through the broader Asian market.

The number of speculative-grade Asian companies with inadequate liquidity remains at nine. Moreover, given that Moody's rates only 97 speculative-grade companies in Asia Pacific, the overall stress index is sensitive to changes in individual corporate liquidity ratings.

The total amount of rated speculative-grade debt outstanding in December was $47.8 billion, down from $49.2 billion in November. The decline reflected the difficulty speculative-grade companies are having accessing bond markets as investors remain concerned about the potential for a global economic slowdown and the ripple effects of the European debt crisis. Consequently, issuers are instead turning to domestic and regional bank lenders to raise funds.

The monthly index looks at looks at liquidity trends throughout the Asia-Pacific region (excluding Japan and Australia) for the speculative-grade companies Moody's rates, and quantifies the proportion of companies with inadequate liquidity.

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