Asia-Pacific credit conditions improving, tail risks rising

FE Online Desk | Published: December 05, 2017 11:36:08 | Updated: December 05, 2017 15:48:51


Credit prospects are better for Asia-Pacific economies given that market fears that were prominent a year agohave largely abated. That's according to S&P Global Ratings in a reportpublished recently, titled, "Asia-Pacific Credit Conditions November 2017:Better Prospects, Fatter Tail Risks".

"For 2018, the uptrend in credit conditions is likely to continue. We expect global economies to generally pick up and Asia-Pacific countries, especiallyChina, to continue expanding their GDPs," said S&P Global Ratings creditanalyst Terry Chan. "What's more, the domestic and cross-border financingenvironment is still favourable--albeit with some tightening--indicatingimproving credit conditions than those a year ago."

 Growth in the region appears to be picking up on the back of a strengtheningglobal economy in general and higher electronics demand. Roughly half of theregion, led by Korea and Malaysia, is experiencing a boom in electronicsexports.

China's growth post-Party Congress is likely to remain strong aswell. Inflation and wage pressures generally remain contained with littleaction on the central bank front. Our article titled, "Asia-Pacific Macro ViewBuoyed By Electronics Exports Surge," published recently provides a detailed view of our economic outlook for 2018.

 The improving credit conditions have resulted in the net outlook bias inAsia-Pacific reducing to negative 7.0 per cent as of October 31, 2017, from negative 15 per cent a year ago. The outlook bias by sector is outlined in our article titled, "Asia-Pacific Sector Outlook 2018: More Positive Despite China Debt And RateHike Fears," published Nov. 30, 2017.

However, tail risks--high-impact, low-probability threats--have become fatter.Conflict (North Korea), political, and trade (Trump) risks, while ebbing andflowing, remain. Meanwhile, China's debt and the region's asset pricescontinue to climb. Taken together, the risk of investors pulling backiquidity, particularly from the region's emerging markets, is still building.

"We consider asset repricing; China's debt overhang; a liquidity pullback;and geopolitical, trade, and physical conflicts remain as Asia-Pacific's toprisks for 2018," the S & P said.In particular, the region's faster debt growth pose a looming threat, asindicated in our article titled, "Asia-Pacific Debt Growth 2018: SlightlyFaster Growth, A Touch More Risk".

-rmc//

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