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Moody's Investors Service says that the credit implications for Asia Pacific sovereigns of a potential shift in US (Aaa stable) policies after the election would materialize through changes in trade and investment if the next US administration adopts less proactive foreign engagement over time.
Moody's report points out that US policies under the next administration could range from a continuation of the status quo to a gradual retrenchment from trade and investment ties and curbs on immigration.
In general, the credit implications are likely to be limited. For instance, Asia Pacific sovereigns' direct exposure to a potential slowdown in US imports is generally small. However, Asian economies whose exports to the US are focused on high value-added manufacturing products are more vulnerable to policies that disincentivized foreign sourcing of business services.
In this respect, Moody's says that Malaysia (A3 stable), Taiwan (Aa3 stable) and Korea (Aa2 stable) would be most vulnerable to efforts to repatriate high value-added manufacturing jobs. And, India (Baa3 positive) and the Philippines (Baa2 stable) would be exposed to any policies that discourage US businesses from foreign sourcing of services.
Moody's also says that over a longer period of time, a more insular climate in the US could crimp foreign direct investment flows, as expansion of production facilities refocus on domestic locations. However, the very small stock of US manufacturing Foreign Direct Investment in APAC implies negligible exposure in this respect.
Meanwhile remittances to Asia could weaken if the US tightened immigration rules. However, the Philippines (Baa2 stable) and Vietnam (B1 stable) whose remittances receipts from the US are largest in relation to the size of their economies also run current account surpluses that would provide buffers against any marked weakening in remittances inflows.
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