Moody's: High leverage, global financial linkages are sources of vulnerability for some Asia Pacific sovereigns

The US-based ratings agency, Moody’s Investor Service, published its latest report on the Asia-Pac economies, underscoring concerns over high leverage and global financial linkages.

Key Quotes:

“Financial asset prices in Asia Pacific (APAC) have fallen markedly since the US (Aaa stable) presidential election in November 2016, with APAC currencies depreciating against the US dollar, equity prices falling and portfolio flows reversing.”

“If they last more than a few weeks, capital outflows or lower inflows will correspond to a tightening in domestic financing conditions for many Asian countries and, for some, could exacerbate difficulties in meeting their current account and external debt payment obligations.”

“Overall, vulnerability to the direct and indirect effects of sustained capital outflows is highest for Mongolia, Sri Lanka, Malaysia (A3 stable), Hong Kong (Aa1 negative), Singapore (Aaa stable) and Taiwan (Aa3 stable), although the latter three have fiscal space to buffer negative shocks.”

“For China, scope to offset a tightening in financing conditions related to capital outflows is still ample, although sustained outflows would erode it.”

“Moody's points out that increased scrutiny by the Chinese authorities over fixed asset and financial investment abroad, indicates their concerns about sustained outflows.”