Standard & Poor’s (S&P) Ratings Services yesterday said Asia-Pacific sovereign ratings faced “no immediate impact” from its one-notch cut to the US’ credit rating on Friday, although an increasingly uncertain and challenging environment does pose a short-term threat to the region.
“Uncertainties in the global financial market and weakened prospects in the developed economies have further undermined confidence,” S&P said in a statement. “The potential longer-term consequences of a weaker financing environment, slower growth and higher risk aversion are negative factors for Asia-Pacific sovereign ratings.”
Taiwan, Thailand, South Korea, Malaysia, the Philippines, Japan, Australia and New Zealand would suffer export-driven slowdowns if a major shock to global financial markets were to cause deep contractions in the US and European economies or further delay their recoveries, the New York-based ratings agency said.
S&P said a possible adverse impact on Asia-Pacific economies in that scenario appeared reminiscent of the 2008 to 2009 global financial crisis, when export--reliant economies with large trade exposures to the US and Europe were hit hard.
“It’s not likely things would be very different this time,” S&P said.
If a similar scenario occurred, governments in the Asia-Pacific region would likely once again use their balance sheets to support their economies and financial sectors.
However, for economies such as Taiwan, Japan, India, Malaysia and New Zealand, a renewed slowdown would likely create “a deeper and more prolonged impact than the last one,” S&P said.
This is because these economies’ fiscal capacities have shrunk compared with their levels before the global financial crisis in 2008, the ratings agency said.
“The implications for sovereign creditworthiness in Asia--Pacific would likely be more negative than previously experienced and a larger number of negative rating actions would follow,” S&P said.
The direct impact on -corporations and infrastructure is likely to be limited, although a prolonged market disruption would possibly result in increased spreads, reduced liquidity and heightening refinancing risks, S&P said.
The financial services sector would likely experience a rise in spreads and force the Australian, South Korean and Japanese banks, in particular, to face rising costs in their offshore funding markets, it added.
At worst, if a sudden capital outflow occurs in this region, S&P said, regional banks and insurance companies would see declines in the market values of their investment assets. They would also face mounting pressure on their capital market-dependent income, it added.