Moody's Credit Rating Trends Confirm Asia's Economic Stability, But With Some Red Flags

Asia's economic growth is looking stable, as suggested by Moody's Investors Service's report examining credit trends and rating movements for issuers -- most of which are rated by Moody's -- in the J.P. Morgan Asia Credit Index (JACI).

 

"For the most recent data, the two main takeaways are that stability still dominates ratings, but ratings movements at the margin will likely be negative," says Laura Acres, a Moody's Vice President and Senior Credit Officer.

 

The report reflects Moody's views and was not done in collaboration with J.P. Morgan.

 

For the latest JACI, market weightings are as of May 13, 2011 and ratings are as of June 15, 2011.

 

"Currently, outlooks for the ratings of 81% of the companies in the index are stable. This percentage increased substantially in June, following Moody's upgrade of the Philippine government's debt rating to Ba2 and the accompanying change in the rating outlook to stable from positive," says Acres.

 

According to Acres, the Philippines is the largest individual issuer in the index, so the change to a stable outlook also changes the mix of positive/negative outlooks.

 

"At the margin, as indicated, a negative bias now underlies the rating outlooks of issuers in the region, with some 12% of index components having a negative outlook and another 3% with ratings under review for downgrade," says Acres. "And about 4% of issuers in the index have a positive outlook, although these are largely tied to issuer-specific reasons rather than to wider sovereign movements."

 

According to the report, issuers with negative outlooks are concentrated in three areas: China-based corporates; Hong Kong-based corporates (given the relatively heavy weighting of Hutchison Whampoa); and certain Korean banks and financial institutions, including the Korea Development Bank.

 

Moody's rates 96% of the JACI's components, of which rated investment-grade names represent 61%, and non-investment-grade companies 35%. The average weighted rating for the entire index is Baa1.

 

The JACI tracks the total return performance of select Asia bonds denominated in US dollars and is a market-capitalization weighted index covering 15 Asian markets (excluding Japan and Australia).

 

It includes some 392 bonds and 204 issuers with a total weighted market capitalization of US$269 billion.

 

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