Potentially higher interest costs and volatile foreign exchange rates represent the top credit risks for Asia-Pacific next year, S&P Global Ratings says.
In its annual year-end publication ''Asia-Pacific Credit Outlook 2017: Trump, Growth and Risks'', S&P Global outlines its view of what lies ahead for the region's economies, markets and credit conditions.
Global Ratings credit analyst Terry Chan said yesterday uncertainty about the policies of United States president-elect Donald Trump's administration was dominating financial markets.
Rising US stock markets, a sell-off in global debt markets and the significant strengthening of the US dollar showed markets were already testing a scenario incorporating key features of Mr Trump's campaign.
They included fiscal stimulus through increased infrastructure spending and tax cuts, rising inflation and a tightening monetary policy. The latter two could lead to higher interest rates, Mr Chan said.
''In Asia-Pacific, investors in particular are concerned about the trade policy the future US government may adopt.''
Such a ''what if'' scenario might hurt the region's auto, consumer goods, infrastructure and technology sectors the most, he said.
Notwithstanding the uncertainty, Asia-Pacific's economic growth appeared to be steadying. Although headline growth rates had not moved much of late, a ''reasonably firm'' pick-up in macro indicators was occurring.
Retail trade sales offered the clearest sign of a pick-up as they were currently above trend in most economies.
''This stems from rising incomes, which, in turn, is part of the region's evolving growth dynamics as consumption plays a larger role.''
Apart from higher interest rates and volatile currencies, other key risks included China's corporate debt, corporate refinancing, trade tensions, property markets and commodity prices, Mr Chan said.
The recent global sell-off in bonds had not fully transmitted to local credit spreads, although the effect might be lagging. With economies still adjusting, the negative momentum in credit quality was likely to continue.
China's economic slowdown had contributed to difficult operating conditions for industries directly or indirectly tied to that country's growth trajectory, he said.
Consequently, among major sectors, metals and mining had the highest negative ratings outlook bias followed by oil and gas, real estate development, transportation, capital goods and chemicals.
