Rebounding Commodities Expected to Keep Asian Nonfinancial Corporate Sector Stable in 2017

Analysts at Moody’s Investors Service anticipate that recovering commodity prices, sound macroeconomic conditions and market liquidity likely will keep Asian nonfinancial corporate credit quality in stable territory in 2017.

"We expect growth in global and regional economies to stabilize in 2017, which will mitigate the risk of any material deterioration in the credit quality of rated Asian corporates," said Gary Lau, a managing director in Moody's Corporate Finance Group. "That said, we expect a continued trend of modest negative-biased rating actions in 2017, mainly because of still-high financial leverage for many companies and company-specific reasons," adds Lau.

Moderate earnings growth should help improve corporate leverage next year, though it should remain high, Moody’s predicts. Monetary easing, bank funding and “strong onshore markets” should redound positively for adequate domestic liquidity. "On the other hand, capital flows will likely remain volatile due to prolonged uncertainty over potential U.S. rate hikes,” said Laura Acres, a managing director in Moody's Corporate Finance Group. “Asia-bound portfolio flows continue to decline, and a continuation of this trend could weaken Asian currencies and fuel further credit market volatility." Protectionist policies in advanced economies also place trade-reliant nations and exporters in the region at risk.

Companies in India should see the strongest profit growth in 2017, boosted by capacity add-ons and higher commodity prices, while China’s expected 6.2% GDP growth and market liquidity may support moderate revenue and cash flow growth, though the country’s substantial investment needs could further heighten financial leverage, Moody’s analysts predict.

Moody’s outlook by industry is stable for China’s property developers, as it is for the Asian marketing, telecommunications and power sectors, analysts said. The outlook for Asian steel is negative, however, as the ratings firms anticipates declining production and low profitability will weaken earnings in the sector.

– Nicholas Stern, editorial associate

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