Moody's Investors Service says that the downward rating pressure on Asian corporates (ex-Japan) should ease in the next 12 months, mainly driven by a stabilising Chinese economy, an expectation of continued accommodative monetary policies, and the manageable level of refinancing risks.
"Moody's expects fewer negative rating actions for corporates in Asia in 2013 versus 2012, based on our central macroeconomic scenario that the Asian region (ex-Japan) as a whole, will significantly outperform the weak global economy," says Clara Lau, a Moody's Group Credit Officer.
Moody's expectation that economic conditions will be largely unchanged in 2013 suggests a gradual shift towards more stable rating trends overall, and modest improvements in the credit trends for some industries.
"However, negative rating actions will still outpace positive ones, although to a lesser extent, because the weak growth in the developed markets and the lower plateau of Chinese economic growth will continue to pressure Asia's export-oriented corporates and those in cyclical commodity sectors," says Lau.
A Moody's report identifies the most vulnerable sectors to the lower pace of economic growth as: coal mining (negative); shipping (negative); and consumer electronics (negative) & semiconductors. The industries that will be affected to a lesser extent are: steel (stable); refining & marketing (stable); and Chinese property developers (stable).
"Moody's also expects the refinancing risks for Asian corporates (ex-Japan) to be manageable, given the relatively low levels of offshore bonds maturing in the next 12 months, and the benign liquidity environment, which made various funding channels available for high-yield issuers," says Simon Wong, a Moody's Vice President and Senior Analyst, and one of the co-authors of the report.
In terms of specific markets, the report says that the credit quality of Chinese corporate issuers should stabilise, supported by continued ample market liquidity, modest growth in property sales, and public investments in infrastructure projects.
For Korea, Moody's expects downward rating pressure on private sector companies in general, mainly driven by a sluggish housing market and subdued private consumption, the won's appreciation, and the aggressive investment strategies of Korean firms, despite the limited financial cushions for their rating levels.
Finally, the new report notes that the credit quality of firms in Indonesia and India should be stable in 2013, underpinned by economic growth, which will remain broadly similar to 2012, or, in the case of India, slightly better than last year.
However, Indian corporates will continue to face the challenges of weak infrastructure support and regulatory constraints, while Indonesian firms in the commodity sector will be pressured by unfavorable demand and supply fundamentals.