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S&P: Rising trade war risks threaten stable Asia-Pacific credit conditions

S&P Global Ratings said March 28 that an escalating trade dispute between the U.S. and China could "upset" the Asia-Pacific region's otherwise stable credit conditions and continued economic growth.

"Fears of a China-U.S. trade war cloud positive momentum in the Asia-Pacific's macroeconomic outlook, financial conditions and sector trends," warned S&P Global Ratings credit analyst Terry Chan. "The top macro risk for Asia-Pacific is trade-related."

S&P raised the risk level of trade interruption and geopolitical tensions to "high" from "elevated" after U.S. President Donald Trump's recent spate of China-specific trade penalties. But the rating agency does not expect U.S. tariffs of up to $60 billion on Chinese imports to have a large impact on its rated companies, citing a preliminary impact analysis that assumes tariffs of up to 25% on designated sectors.

While Beijing's response to the U.S. trade actions has been moderate so far, the risk of escalation is rising and a trade war involving China could affect Asia-Pacific business activity and growth, S&P cautioned. The threat of a trade war has kept geopolitical fears high despite slight improvements in Asia-Pacific's macroeconomic outlook, financing conditions and rating trends over the past quarter, said Chan.

S&P expects monetary policy settings in the region to stay accommodative while corporate financing conditions will remain favorable entering the second quarter of 2018 despite relatively tighter credit standards in emerging Asia. More than $200 billion worth of Asia-Pacific debt is expected to mature in 2018, the rating agency said.

Aside from trade-related risks, S&P said Asia-Pacific also remains vulnerable to asset-price volatility and capital outflows in the second quarter. Other key risks include a possible liquidity pullback and the China debt overhang, which the rating agency considered "elevated but manageable in the short term."

Meanwhile, sustained regional economic growth and improved commodity prices have eased the negative rating pressure on the Asia-Pacific issuer pool in recent months, S&P added.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.