SINGAPORE: Sovereign credit trends should remain stable in most Asia-Pacific economies over the next one to two years, according to S&P Global Ratings.
The rating agency published its latest report titled Asia-Pacific Sovereign Rating Trends Midyear 2017 on Thursday.
S&P said the number of negative outlooks remained elevated as global and regional uncertainties weigh on credit metrics.
“Following the upgrade of the Indonesian sovereign credit rating to investment grade, none of the 21 ratings in the region currently record a positive outlook,” S&P said.
It noted that potential financial market disruptions associated with higher interest rate expectations in the advanced economies and unexpected political or geopolitical events are key risks.
“The Indonesian sovereign rating upgrade in May 2017 added one more investment-grade sovereign rating to Asia-Pacific and reduced the number of speculative-grade sovereigns,” S&P Global Ratings credit analyst Kim Eng Tan said in a statement.
“Until this upgrade, the distribution of sovereigns in the investment-grade categories had been stable since we raised the rating on the Philippines in May 2013. Before the Indonesian upgrade, the number of ‘BB’-category sovereigns was last reduced by the downgrade of Mongolia in April 2014,” Tan said.
S&P said Asia-Pacific sovereign credit quality faces risks from possible financial market disruptions, and political and geopolitical developments.
“An abrupt change in US trade policy toward the region could have significant implications for growth and confidence in East Asia. This could set back efforts to rein in financial risks in economies that have seen significant increases in leverage if export growth cannot offset slower domestic demand,” Tan said.
In its view, S&P said the developments in the Korean peninsula have raised the risk of a military conflict that could have significant negative economic and financial impact across the Asia-Pacific. However, it still view military conflict as an unlikely scenario.
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