Higher interest costs, volatile FX rates pose serious credit risks for Asia-Pacific in 2017, says S&P Global Ratings

Potentially higher interest costs and volatile foreign exchange rates represent the top credit risks for  Asia-Pacific going into 2017. Uncertainty about the policies of the future President-elect Donald Trump's  administration is dominating financial markets.

Rising U.S. stock markets, sell-off in global debt markets and the significant strengthening of the U.S.  dollar shows that markets are already testing a scenario that incorporates key  features of Trump's campaign: fiscal stimulus through increased infrastructure  spending and tax cuts; rising inflation; and a tightening monetary policy. The latter two may lead to higher interest rates, S&P Global Ratings reported.

"In Asia-Pacific, investors are in particular concerned about the trade policy the future U.S. government may adopt. Such a "what if" scenario may hurt Asia-Pacific's auto, consumer goods, infrastructure and technology sectors the most," said Terry Chan, Credit Analyst, S&P Global Ratings .

However, economic growth in the region appears to be steadying. Although headline growth rates haven't moved much of late, a reasonably firm pick-up in macro momentum indicators is occurring. Retail sales offer the clearest sign of a pick-up; it is currently above trend in most economies. This stems from rising incomes, which, in turn, is part of the region's evolving growth dynamics, with consumption playing a larger role.

Meanwhile, china's economic slowdown has contributed to difficult operating conditions for industries directly or indirectly tied to that country's growth trajectory. Consequently, among the major sectors, metals and mining have the highest negative ratings outlook bias, followed by oil and gas, real estate development, transportation cyclical, capital goods, and chemicals. Our series of sector articles, including selected corporate sectors by country, discusses this issue.