Moody's: Asian corporate credit quality stable on steady macro conditions and recovering commodity prices

Moody's Investors Service says that the credit quality of the Asian (ex-Japan) non-financial corporates that it rates will remain stable in 2017, supported by steady macro conditions, a recovery in commodity prices and adequate market liquidity.

"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," says 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.

Moody's conclusions are contained in its just-released 2017 outlook presentation for Asian (ex-Japan) non-financial corporates, "Non-Financial Corporates -- Asia (ex-Japan) : 2017 Outlook -- Steady Macro Conditions and Commodity-Price Recovery Support Stable Credit Quality."

Moody's expects leverage to improve slightly across the rated portfolio in 2017, supported by moderate earnings growth, but will remain elevated.

Moody's also forecasts domestic liquidity to remain adequate, underpinned by monetary easing, healthy bank funding and strong onshore markets. This factor and manageable refinancing risk should lead to a moderation in default rates for rated high-yield corporates.

"On the other hand, capital flows will likely remain volatile due to prolonged uncertainty over potential US rate hikes. Asia-bound portfolio flows continue to decline, and a continuation of this trend could weaken Asian currencies and fuel further credit market volatility," says Laura Acres, a Managing Director in Moody's Corporate Finance Group.

Moody's also points out that many trade-reliant countries and exporters in this region are vulnerable to the risk of protectionist economic policies in advanced economies.

By country, Moody's expects to see the strongest profit growth among corporates in India (Baa3 positive), underpinned by sustained economic growth, capacity add-ons and higher commodity prices.

In China (Aa3 negative), GDP growth of 6.3% and ample market liquidity will support moderate growth in revenue and cash flows, although financial leverage will remain elevated owing to sizeable investment needs.

In Indonesia (Baa3 stable), Moody's expects corporate profits to grow modestly on infrastructure investment and recovering commodity prices.

And in Korea (Aa2 stable), steady macro conditions and prudent investment should support stable earnings and financial leverage.

By industry, Moody's outlook is stable for Chinese property developers, and for the Asian refining and marketing, telecommunications and power sectors.

However, the outlook for the Asian steel sector is negative, as Moody's expects the earnings of steelmakers to weaken amid declining production and low profitability.