Liquidity in Asia weakening, Moody's reports

Japan's stock market was battered by the fallout from the Covid-19 on Friday, March 13, 2020.

KUALA LUMPUR: Moody's Investors Service's Asian Liquidity Stress Indicator (ALSI) edged higher in February, continuing from October last year as liquidity positions for some companies weakened.

It said on Friday the ALSI had risen to 32.9% in February from 32.7% in January.

The ALSI measures the percentage of high-yield companies with Moody's weakest speculative grade liquidity score of SGL-4 as a proportion of high-yield corporate family ratings. The indicator increases when speculative-grade liquidity deteriorates.

“ The ALSI ticked up slightly in February, with liquidity remaining weak for 50 of the 152 high-yield companies that we rate, compared to 49 out of 150 companies in January, ” Annalisa Di Chiara, a Moody's senior vice president said.

Although the North Asian sub-indicator improved marginally to 34.3% in February from 34.9% in January, liquidity remained weak for Chinese industrials.

The Chinese industrial sub-indicator registered 63.2%, indicating 24 out of 38 rated corporates had weak liquidity.

“Meanwhile, the South & Southeast Asian sub-indicator weakened for the third consecutive month to 29.5% in February, registering its highest level since July 2019 and reflecting tightening liquidity among rated Indonesian companies, ” Di Chiara added.

Moody's said monthly issuance slowed markedly to US$1.2bil in February from US$13.2bil in January, reflecting volatility in the bond market and weakened sentiment due to the coronavirus outbreak.

While SGL scores were assigned to all 152 rated companies, only 119 have rated debt outstanding, totaling US$142.8bil at the end of February.

The report said liquidity in Asia is weaker than in the US or Europe, the Middle-East and Africa, because companies in Asia depend more heavily on relationship banking, which relies on rolling over short-term and uncommitted lines of credit rather than providing committed levels of funding.

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