Sovereign credit fundamentals in Asia-Pacific resilient: Moody’s

Sovereign credit fundamentals in the Asia-Pacific region are likely to remain resilient and credit profiles are expected to improve compared to other regions, Moody’s Investors Service said today.

The sovereign credit fundamentals in the Asia-Pacific region are likely to remain resilient to both global headwinds during 2013 and the persistence of extraordinary easing by the US Federal Reserve, Moody’s Investors Service said in a release.

Growth in the region is expected to remain flat at 5 per cent in 2013 and will continue to grow faster than any other region. Though, China’s growth has moderated, it should remain relatively robust in the near term, it said.

Banking systems in the Asia-Pacific are generally sound and well-positioned to continue to support growth without creating significant contingent risks to their respective sovereigns, Moody’s said.

Moreover other financial soundness indicators such as capital adequacy, liquidity, and asset quality are generally robust enough to withstand either a normalisation of interest rates, or a range of adverse economic shocks emanating from the global economy.

Leadership changes in the big three East Asian economies will be positive for pro-growth policies in the near term, although Japan in particular faces long-term challenges.

Nevertheless, rising geopolitical tensions over the past year have emerged over maritime territorial disputes and would have significant economic ramifications if not constructively managed.

“Elections over the next year may also impact the outlook for reform in several countries, thus colouring our views on fiscal and debt sustainability,” the report said.

According to Moody’s, a number of frontier markets in the region could be of particular interest to investors in 2013.

Notwithstanding the relatively shallow domestic pools of savings, Asia-Pacific’s frontier economies may continue to tap global capital markets for financing in 2013.

During 2012, despite the global financial crisis in 2008 and subsequent downturn in advanced economies, Korea, Indonesia and the Philippines were upgraded, while Vietnam and Pakistan were downgraded by one notch each.