Moody's: Asian Corporate Outlook Stable in 2014, But Challenges Apparent

Moody's Investors Service says that the outlook is stable for non-financial corporates in Asia (ex-Japan) during 2014.


The outlook reflects Moody's expectation that the regional and global economic recovery, solid liquidity for most rated corporates, and stabilizing leverage will lead to an overall stable credit environment in 2014.


GDP growth in China of mid-7% will support steady business growth for many companies, although exporters will continue to face subdued conditions. But the recovery in the US and Europe, the main sources of external demand, will help exporters throughout the region.


The challenges include temporary policy uncertainty amid elections in India and Indonesia, which could affect companies in regulated industries, or subject to subsidies, such as natural resources and oil and gas.


According to the "2014 Outlook--Asia (ex-Japan) Non-Financial Corporates: Asian Corporate Credit Is Stable Despite Strengthening Headwinds" report, the corporate outlooks are stable for China, Korea and Indonesia, while India's corporate outlook is negative. Large industries -- including property, telecommunications, utilities and refining -- also have stable outlooks.


During 2014, refinancing risks are expected to be manageable. Asia Pacific bond maturities in 2014, totaling $108 billion in both domestic and cross-border markets, are lower than the region's average yearly bond issuance in each of the last three years. The vast majority (93%) of maturities are investment-grade; speculative-grade maturities are just $8 billion next year.


Moody's outlook would likely turn negative if China's GDP growth declines toward 5%-6% in the next 12 months and interest rates rise across the region. Moody's would also consider a positive outlook if we come to expect sustained Chinese economic growth of at least 9%, leading to higher GDP growth throughout the region, and a stronger-than-expected recovery of the global economy, particularly for the US and Europe.

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