The overall credit conditions for Asia-Pacific non-financial companies may weaken in 2020 because of slowing global economic growth, continued trade policy uncertainty and geopolitical disputes, according to Moody’s Investor Service.
Overall global economic growth will remain middling with the US and China continuing to decelerate in growth.
Moody’s predicts the US economy will grow at 1.7% and China 5.8% in 2020.
Moody’s also predicts the first phase US-China trade agreement will not resolve the core differences between the two countries, particularly in regards to technology competition, which means policy uncertainty will persist.
The uncertainty will continue to dampen business and investment sentiment, adversely affecting the earnings growth and profitability of corporations.
Major central banks, including the US Federal Reserve, the European Central Bank and the Bank of Japan, will maintain accommodative monetary policies to provide near-term liquidity, supporting growth as well as credit and financial market stability, says Moody’s.
The company expects most rated companies to be better equipped than their industry peers in maintaining access to funding and withstanding negative economic developments, but funding conditions for weaker companies will tighten.
Ratings with negative implications in Asia-Pacific rose to 17% at the end of 2019 from 10% at the end of 2018.
As a result, the share of ratings with a stable outlook declined to 79% at the end of 2019 from 85% at the end of 2018.
For Asian and Japanese corporations in particular, the share of ratings with negative implications increased to 19% and 24%, respectively.
Moody’s also expects the automotive sector to be under the most negative pressure, with the share of ratings with negative implications at 41% as of the end of 2019.
It predicts the credit profiles of some automotive companies to weaken because of sluggish global demand amid weakening economic growth in key markets, while emissions regulations and investment in new technologies are increasingly having an impact on automakers’ financial results and credit quality.
In 2019, the rating trend for the Asia-Pacific rated corporate portfolio was negative, with 128 negative and 48 positive rating actions, of which 16 negative and three positive actions were sovereign-driven, whereas two negative rating actions were prompted by an updated cross-sector methodology.
Of the 128 negative actions, China (38), India (24) and Japan (21) were the three main contributors, accounting for over 60% of the total negative actions.
The rating trend turned negative in the third quarter of 2019, with negative rating actions materially outpacing positive actions at 50 to 11. The total number of negative rating actions recorded in the second half of 2019 was double that in the first half of the year.