Taiwanese companies face increasing credit risks this year because a slowdown in the Chinese economy is likely to subdue the benefits from the US’ continuing recovery, Taiwan Ratings said.
“As Taiwan’s largest trading partner, China’s ongoing economic slowdown will most likely outweigh the potential benefits from a US recovery over the next 12 months” and downside scenarios are gaining strength in most sectors, Standard & Poor’s Taiwan branch analyst Anne Kuo (郭彥煒) said.
Taiwan Ratings’ forecast comes after exports contracted more than 10 percent last year due to overcapacity among local manufacturers.
The inventory adjustment has yet to come to an end as indicated by the 12.3 percent plunge in export orders recorded in December last year, Taiwan Ratings said.
China accounted for 40 percent of Taiwanese exports last year while the US made up 12.2 percent, Ministry of Finance data show.
As a result, this year the ratings of corporate firms might come under more downside pressure than those for financial institutions, fixed income funds and structured finance sectors, Kuo said.
Nonetheless, a majority of Taiwanese companies have the capacity to withstand softening profitability and cash flow, thanks to their business strengths and financial leverage, the analyst said.
Rating pressures for individual firms vary depending on their exposure to oversupply in global commodity markets and their standings in credit cycles, Kuo said.
Taiwanese financial institutions also face a tough year as the global economy remains unstable.
The low interest rate environment at home and volatile financial markets worldwide mean thin profitability for financial institutions, according to another Taiwan Ratings analyst, Eva Chou (周怡華).
However, the sector is expected to weather the challenges unscathed due to its adequate capitalization and ample market liquidity, Taiwan Ratings said.
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