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Asia-Pacific Credit Outlook 2019 Cold Wind Blowing

Highlights

Overall: We expect credit conditions in Asia-Pacific to tighten further in 2019. With U.S. interest rates rising and sentiment weaker, financing conditions are likely to constrict as macroeconomic indicators soften.

What's changed: Market optimism is fading. Given that the U.S. economy is likely to slow down through 2019, investors are turning conservative, leading to credit tightening, capital flow volatility, and pressure on some emerging market currencies.

Rsks and imbalances: Corporate refinancing risk, U.S.-China strategic confrontation (most visibly over trade), asset repricing risk, and China’s debt leverage are the top risks for the region going into 2019. In particular, the first two risks are high and worsening.

Financing conditions: Headwinds in 2019 include climbing borrowing costs (as the Fed continues its rate hikes), refinancing of U.S. dollar-denominated debt, capital market volatility, and declining investor sentiment.

Macroeconomic conditions: The pace of the regional slowdown is the key uncertainty. Current data and economic policies are still supportive of a gradual and benign slowdown. We forecast China’s GDP growth to ease to 6.3% in 2019 from 6.5% in 2018.

Sector themes: Corporates will find refinancing more challenging in 2019. While banks will also be challenged by higher interest rates; most bank outlooks will remain stable. For sovereigns, protectionist policies between China and the U.S. could intensify, weighing on regional growth.

Dec. 03 2018 — Indonesian President Joko Widodo’s "winter is coming" quote aptly characterizes the trend in Asia-Pacific credit conditions going into 2019. At the International Monetary Fund's meeting in Bali, October 2018, President Widodo highlighted that the continuing U.S.-China trade dispute and technology disruption on many industries are among the many issues plaguing the world. Likewise, S&P Global Ratings considers these two issues to be among the top-five credit risks in Asia-Pacific. In addition, the Asia-Pacific faces the risk of commodity, currency, equity, and property price volatility. Corporate refinancing risk and China’s high leverage round up our top-five credit risks. In summary, the outlook for 2019 is more pessimistic than it was a year ago.

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