Moody’s: Asian corporates will see steady earnings growth in 2018

Hong Kong — Moody’s Investors Service says that steady economic expansion and corporate earnings growth will underpin the
stability of credit quality for corporates in Asia (ex-Japan) during
2018, while refinancing requirements will also be manageable.

“Healthy economic growth in the Asian and global economies will support
steady earnings growth for Asian corporates, which in turn will improve
their financial leverage,” says Chris Park, a Moody’s Associate Managing
Director.

“Furthermore, the gradual normalization of monetary policy will support
the near-term liquidity needs of corporates in the region,” says Park.

Moody’s conclusions are contained in its just-released presentation,
“Non-financial corporates — Asia (ex-Japan), 2018 Outlook”.

Currently, Moody’s has stable outlooks for the key sectors in the region:
China property, Asian steel, Asian refining and marketing, Asian telecom,
and Asian power. Some 88% of investment-grade companies and 68% of
non-investment grade companies had stable outlooks at end-October 2017,
up from 63% and 55% a year ago.

“In terms of major macro themes, Moody’s expects that G-20 growth will be
slightly above 3% in 2017 and 2018, up from 2.5% in 2016, while China’s
GDP growth will slowly decelerate in 2018 as less policy stimulus is
provided,” says Park.

The number of negative rating actions in Asia will also decline on these
healthy macro conditions and stable liquidity.

“However, a potential protectionist turn in US trade policy could pose
risk to trade-reliant economies,” says Park.

Further downside risks include military confrontation on the Korean
Peninsula, causing the loss of production in Korea and disruptions in the
region’s supply chains; and a significant deceleration in China’s growth
because of ineffective reform measures and the knock-on effects for
Asian corporates.

On the other hand, upside risks include China’s growth accelerating on
major stimulus programs, boosting regional economic growth and corporate
earnings; and stronger-than-expected growth in the US and EU, together
with limited disruption from US interest rate normalization, leading to
increased exports and earnings for Asian corporates.

Moody’s summarizes its outlook for the corporates in each major Asian
economy as follows:

Chinese corporates: GDP growth of 6.6%, operating-efficiency gains and
stable commodity prices will support moderate revenue and cash flow
growth.

Indian corporates: Credit profile improvements will continue on healthy
earnings growth, underpinned by solid economic growth and increased
production capacity.

Indonesian corporates: Earnings growth will moderate in 2018, following a
recovery in 2017, and capital spending will increase with healthier
balance sheets.

Korean corporates: Steady earnings and manageable capital spending will
keep financial leverage broadly stable .