Moody's Asian Liquidity Stress Index Falls to Record Low in August

Moody's Investors Service says that its monthly Asian Liquidity Stress Index fell to a record low in August with just 9.7%, or some 10 names, of its rated speculative-grade portfolio demonstrating inadequate liquidity.


"The index, which declines when corporate liquidity increases, has been between 11% and 13% since the start of the year, and was at 11.4% in July," says Laura Acres, a Moody's Vice President and Senior Credit Officer. "At the same time, the August improvement was issuer-specific, rather

than a broad improvement across the high-yield spectrum."


According to Acres, the high level of corporate liquidity in Asia continues to suggest a low probability of default for the region's speculative-grade companies, and so far this year, there have been no defaults.


"However, looking ahead, we think speculative-grade companies could face higher costs, and weaker ones could find access to credit more limited if investors, particularly those outside the region, decide that it is too risky to lend to low-rated companies," says Acres.


Acres notes that investors are increasingly concerned about the fallout from problems some European sovereigns are facing, and fears there could be another global recession.


"With the Asia-Pacific (ex Japan) trailing 12-month speculative-grade default rate, we expect it could fall further in the third quarter of this year to as little as 0.38%, but there is a risk that it could rise if there is a material change in banking-system stress due to the ongoing European sovereign debt crisis or adverse developments for specific issuers," says Acres.