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Asean

Moody's sees more challenges from political risks and household debt

Political risks in some countries in Asean and rising level of household debt in several countries pose greater risks for the region to unlock its potential, said Moody's Investors Services.



Moody’s Investors Service’s Chief Credit Officer for Asia Pacific, Michael Taylor, pointed out that political disturbances could undermine credit fundamentals or exacerbate external vulnerabilities.

"If the political impasse in Thailand persists for the rest of 2014, we estimate that the economic cost will be significant, slicing off at least 2-3 percentage points from our pre-crisis forecast of 4.5 per cent real GDP growth," he said at a conference in Manila today organised by the Financial Executives Institute of the Philippines. "We see the military coup in Thailand as further weighing on the country’s economic performance, with the risk that political uncertainty will continue to dim the investment climate and dampen growth performance."

The Asean economies they refer to are the six comprising Singapore, the Philippines, Malaysia, Indonesia, Vietnam and Thailand.

"On the other hand, rising household indebtedness could constrain regional growth, particularly if Asean economies weaken, and if unemployment in the region rises, hurting consumer confidence and disposable incomes," added Taylor.

Putting the risk factors aside, Moody’s noted that while the engine of global growth is shifting from the emerging to the advanced economies, Asean is generally insulated against global risks such as a slowdown in capital inflows, as US Fed tapering progresses.

"While tighter global credit conditions will result in slower growth across the emerging economies, Asean economies generally should continue to perform well," said Taylor.

"Asean economies are less susceptible than most emerging markets to a slowdown in capital inflows, as US Fed tapering progresses, and their export-oriented focus should benefit from a recovery in the US economy," he added.

Moody’s Vice President and Senior Research Analyst, Rahul Ghosh, said that while the overall outlook for Moody’s-rated Asean corporates and banks is stable, firms face a more challenging operating environment.

"Despite their enduring strengths, Asean corporates and banks face a more challenging operating environment in the coming quarters due to tighter credit conditions, a deceleration in the Chinese economy, and the emergence of political risk," Ghosh said.

Ghosh also points out that because Asean’s exposure to Chinese demand has increased significantly in recent years, a prolonged slowdown in China

would have a significant impact on the region’s corporates and banks.

As for the risks in Asean’s banking sector, Ghosh said such risks involve higher debt-servicing burdens for households and a correction in asset prices.

Nonetheless, the banking sector exhibits strong capital buffers and modest problem loans; factors which should provide sufficient support for their ratings.

On the rating trends for non-financial corporates, Ghosh said that while such trends are likely to be mildly negative in 2014 for Asia as a whole, Asean is better positioned than other sub-regions in Asia.

"Refinancing is generally manageable for Moody’s-rated Asean corporates, because their debt maturities are well staggered and relatively small

when compared to the issuance of previous years," said Ghosh.


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