Asia Pacific outlook for rated nonfinancial companies is stable with still-solid, though slowing, growth and supportive domestic business conditions, said Moody’s recently.
Despite the stable Asia Pacific outlook, the credit rating agency warned that risks are rising as interest rates surge and currencies depreciate.
Meanwhile, nonfinancial companies in China will face tougher credit conditions in 2023 compared with 2022, given persisting domestic challenges while external risks intensify, the firm noted.
"Increasing interest rates and refinancing risk will hit lower-rated companies in APAC hardest, with high-yield companies shut out from debt markets amid growing investor risk aversion,” said Nidhi Dhruv, a Moody's Vice President and Senior Analyst.
“And the depreciation of many Asian currencies against the US dollar raises the costs of imported raw materials and dollar funding.”
At the same time, geopolitical tensions are prompting changes in energy and supply-chain strategies, according to Moody’s.
While India, Japan and Korea have continued to import coal, oil and gas from Russia and Indonesia may do the same, the risk of further energy shocks remains high, the firm observed.
Elevated inflation and aggressive interest rate hikes are slowing global growth, which will dampen trade activity in China Moody’s pointed out.
For companies in APAC ex-China, demand for products and services is generally holding up despite some softening in recent months, the firm said.
In addition, business conditions will remain supportive for most rated companies as more countries move toward a full post-pandemic reopening, Moody’s added.
"For Chinese companies, the property slowdown will continue to weigh on related sectors and investor sentiment. Slowing global growth will weigh on exports while ongoing geopolitical tensions will impact supply chains and reduce portfolio investment," said Lina Choi, a Moody's Senior Vice President and Manager.
Given Chinese authorities are likely to remain cautious, government support will remain modest with an uneven impact across sectors, according to Moody’s.
The speed and extent of easing COVID restrictions will affect policy effectiveness, while credit differentiation will accelerate between state-owned and privately-owned companies, Moody’s noted.
Moody's said it could change the outlook to negative for APAC (ex-China) if the Russia-Ukraine military conflict further escalates, posing additional risks to the global economy and financial conditions; persistently high inflation leads to aggressive interest rate hikes and tighter liquidity conditions; new COVID-19 variants severely disrupt economic recovery; or China's slowdown worsens and triggers widespread deterioration in global growth and credit conditions.