Moody’s: Stable Credit Trends to Continue for Non-Financial Corporates

JAKARTA (TheInsiderStories)  – Moody’s Investors Service expects improving global credit conditions amid healthy economic growth and a supportive funding environment will help sustain the stable rating trend evident for Asia-Pacific non-financial corporates in third quarter 2017 for the rest of the year.

“The share of non-financial corporates in Asia with a stable ratings outlook was at 75% at end-September 2017 compared with 74 per cent at end-June 2017, while the share of ratings with negative implications dropped to 16 per cent from 19 per cent,” says Clara Lau, a Moody’s Group Credit Officer.

“Similar trends were observed for the Japan and Australian corporate portfolios, with the trend turning stable in Japan and remaining stable in Australia and New Zealand,” says Lau.

This stable credit trend is underpinned by a healthy global economic expansion on the back of an orderly correction of monetary policies in the advanced economies, growth-focused economic policies in China and stable commodity prices. In Asia, solid domestic demand, a modest recovery in commodity prices, accelerated export growth and structural reforms have been the key drivers of economic growth.

The healthy global economic environment is setting the stage for a reversal of expansionary monetary policies in the advanced economies, although we expect the tightening of global monetary policy will proceed gradually over the next few years.

Nonetheless, there has been a buildup of financial stability risks during the past decade of low interest rates. In addition, increasing geopolitical risks arising from escalating tensions between North Korea and the US, and a more protectionist turn in US trade policy could also raise uncertainties for our baseline expectation of a benign credit outlook.

The third quarter 2017 was the first quarter since second quarter of 2013 when positive ratings actions outpaced negative actions, excluding non-credit driven actions. During
the third quarter 2017, there were 22 positive and 16 negative actions taken on non-financial corporates in Asia-Pacific.

The adjusted rating trend tracker was at 1.38x, higher than 0.75x seen at the end of second quarter 2017.

At the same time, Chinese retailers and property developers continue to face challenges. While we expect the outlook for the residential property sector in China (A1 stable) to remain stable through 2018, tight government controls will continue to put pressure on property developers. Chinese retailers continue to face strong competition from online retail, but improved products and shopping environments have helped perating performance. (*)