KUALA LUMPUR: Fitch Ratings is maintaining its Negative Outlook on Malaysia’s sovereign ratings.
In its 2015 Outlook for Emerging Asian Sovereigns report on Monday, said it said eight of 10 Emerging Asian sovereigns were on Stable Outlook, with two (Malaysia and Mongolia) on Negative Outlook.
The ratings agency pointed out its negative outlook for Malaysia, whose A- rating it had affirmed on July 23, “reflects the erosion of its current account surplus amid large public sector deficits and a drop in oil prices”.
Fitch said this was in the context of relatively weak credit fundamentals for an ‘A’ range sovereign.
“Fitch acknowledges that the government has so far stuck to a path of consolidation for the headline federal deficit set out in July 2013, although the drop in oil prices could delay or derail fiscal consolidation, if sustained.
It added the emergence of “twin” public and external deficits could affect investor confidence, if it were to occur.
Overall, for emerging Asian markets, positive pressure on ratings is ebbing. This followed a run of upgrades since 2011, the latest being Vietnam, which was raised to 'BB-'/Stable on Nov 3, 2014.
A deeper dive into credit profiles using Fitch Ratings’ four main categories for analysis reveals marginally more negative than positive momentum.
“Market volatility in December 2014 could be a foretaste of what is to come in 2015 as the US Federal Reserve moves towards raising interest rates while other major central banks may ease policy further,” it said.
Fitch said it was striking that the Emerging Asian markets should have been caught up in turbulence coming from Russia, as the region's direct links with Russia are few.
“These events show that Emerging Asia remains vulnerable to contagion from events elsewhere,” it said.
Fitch said it expects real GDP in Emerging Asia, excluding China, to expand by about 6% in 2015 and 2016, remaining the world's fastest-growing region.
“We forecast China's GDP to expand at 6.8% in 2015 and 6.5% in 2016, as the government's bid to rebalance the economy works through. Lower oil prices and faster growth in advanced economies support most Emerging Asian countries, including China,” it added.