The top risks for emerging Asia over the next 12 to 18 months are inflation and supply chain disruptions, according to an audience poll at the Emerging Market Summit Asia 2022 organised by Moody's Investors Service earlier this month.
These two top risks for emerging Asia were followed by the potential impact of rising interest rates and slower economic growth, Moody’s said.
Given the supply chain disruptions, MNCs have indicated a rising intention to relocate more manufacturing away from China, Jacintha Poh, a Moody's Senior Vice President pointed out.
“Still, we agree with panelists that China will remain embedded in many supply chains due to its comparative advantages,” she said. “Nevertheless, Southeast Asian economies will increasingly benefit from supply chain diversification as more MNCs adopt the "China +1" strategy.”
At the same time, supply disruptions due to the Russia-Ukraine war have boosted prices of thermal coal, oil and gas to record levels, the credit rating agency said.
As a result, rated commodity producers in Asia reported strong earnings and cash flow, which they used for debt reduction, investments or shareholder returns, the firm observed.
These bumper earnings have supported producers amid regulatory risks and rising environmental, social and governance concerns, Moody’s added.
Although commodity prices have retreated from record levels, Moody's expects supply additions to be limited, while demand will remain strong during winter.
Over the longer term, the weakening global growth outlook would reduce demand for most commodities, Moody’s predicted.
In addition, tighter credit conditions will reduce financing activity and diversity in the financing of Asian emerging market infrastructure over the next 12 to18 months, according to the company.
Emerging markets will bear the brunt of the impact compared with other regions, Moody’s said.
As a result, multilateral development banks and governments will play an increasingly important role in bridging the funding gap for infrastructure projects in Emerging Asia to offset credit difficulties and improve investor sentiment, the firm added.
