Moody's Asian Liquidity Stress Index Shows Solid Liquidity for Region

Moody's Investors Service says that its monthly Asian Liquidity Stress Index was unchanged in June from May with liquidity remaining solid for non-financial, speculative-grade companies in Asia.


"The index was 12.3% in June, unchanged from May, and far below the 37% high recorded during the fourth quarter of 2008 amid the global economic recession," says Laura Acres, a Moody's Vice President and Senior Credit Officer.


"The index, which declines when corporate liquidity appears to increase, has held near this low level since the start of the year, and we believe it will more or less stay at the same level going forward, " adds Acres.


"Furthermore, in June, just 12.3% of the Moody's-rated speculative-grade companies showed inadequate liquidity."


Global economic concerns, such as the threat of a default by Greece, to date, don't appear to be crimping speculative-grade liquidity, according to the Moody's report on the index for June.


The current solid level of Asian liquidity suggests a low probability of default for the region's speculative-grade companies, and the Moody's report's expectation is for low default rates to continue for the rest of the year -- absent a negative development, such as a material change in banking-system stress amid the European debt crisis.


But liquidity varies regionally within Asia, and is stronger for Chinese companies than for the overall Asian speculative-grade portfolio owing to a surge of high-yield debt issuance by Chinese corporates during 2010 and the first half of 2011. However, as bank credit continues to tighten, the liquidity cushion for rapidly expanding non-state owned Chinese corporates could diminish.


In Indonesia, by contrast, the percentage of speculative-grade companies with inadequate liquidity is higher than in the overall Asian portfolio. Debt issuance has been relatively low among Indonesian companies so far this year due to an ongoing reliance on the domestic bank markets.




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