Nonfinancial companies in Asia are set to see some relief from negative credit ratings pressure over the next year or so as commodities prices rebound, but the potential for backsliding may come from higher U.S. interest rates or reduced stimulus levels in Europe.
"Our expectation that the negative rating trend will moderate in 2017 reflects the partial recovery made by commodities prices, the fact that the monetary policy of major central banks—with the exception of the U.S. Fed—will likely stay accommodative, continued solid growth in the U.S., and growth in China stabilizing at close to the official target," said Clara Lau, a Moody's Investors Service group credit officer. "At the same time, several factors will likely lead to uncertainty in the capital markets and could reverse the stabilizing rating trend in 2017."
Lau believes that if the U.S. Federal Reserve raises rates this year, it would negatively impact Asian companies, particularly those holding large U.S.-dollar debt without matching cash inflows. Also, if the European Central Bank reduces its monetary stimulus program in 2017 while the Chinese government continues tightening capital outflows, it could bring about more volatility in the markets.
During the fourth quarter of 2016, the share of ratings with negative implications—either negative outlooks or those under review for downgrade—was 29%, the lowest level for the entire year, Moody’s said. Meanwhile, the share of ratings with a stable outlook grew to 65% by the final quarter of 2016, compared to 60% during the prior two quarters.
Chinese firms made up the majority of negative bond ratings in 2016 while the negative ratings concentrated in the metals and mining, as well as property developers, sectors, the ratings agency said.
– Nicholas Stern, editorial associate