Moody's: Asia's macroeconomic fundamentals support credit quality

Moody's Investors Service says that Asia's macroeconomic fundamentals will continue to support credit quality in the region, although weak global growth, China-related risks and pockets of high leverage could pose potential threats to the region's performance.

"Asia is supported by healthy external vulnerability metrics, monetary policy credibility, the positive effects of weaker oil prices and economic reform momentum," says Michael Taylor, a Moody's Managing Director and Chief Credit Officer for Asia-Pacific.

"These factors will continue to attract institutional investors, anchor capital inflows, and support overall credit market stability across the Asian region," adds Taylor.

Moody's report notes that Asia will be a key beneficiary of the collapse in global oil prices, given the region's status as a net energy importer. Specifically, lower crude prices will help consolidate current account and fiscal positions, mitigate inflationary pressures and boost disposable incomes.

Moreover, Moody's says countries such as Malaysia (A3 positive), India (Baa3 stable) and Indonesia (Baa3 stable) have taken advantage of lower oil prices to reduce subsidies and improve their fiscal policies.

Despite these positives, Moody's notes that a slowdown in global trade on the back of weak global growth is a clear risk factor for the region's export-oriented economies.

"In addition, both China's rising corporate debt burden and risks stemming from the Chinese property price decline could trigger a sharper slowdown on the Mainland than we currently expect," says Ghosh, adding "Given the increased interdependence between China and the rest of Asia, this could produce macroeconomic effects that ripple across the region."

And while Asia's macroeconomic credentials stack up well against other emerging markets and traditional advanced economies, institutional shortcomings and a lack of transparency remain key issues for the region.

Implementation of the reforms currently on various regional government agendas would help to mitigate these risks.

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