The economic outlook for the Asia-Pacific region is relatively robust for next year, but the region's stock markets may face increasing pressure in the meantime, Standard and Poor's said yesterday.
The ratings agency said the region's equity markets would have less room to move up next year after their generally strong performances this year.
"The equity markets in Asia-Pacific are generally supported by the favored regional economic fundamentals ... but issues such as inflation and concerns over the US financial sector are likely to weigh on regional equity markets," Lorraine Tan (陳麗子), head of S&P's equity research team for the Asia-Pacific region, said in a teleconference call.
Tan's comments came as her agency released its 2008 Asia-Pacific Markets Outlook report.
Her remarks came as Japan's shares lost 2.02 percent, Chinese stocks plunged 4.85 percent and the TAIEX fell 3.90 percent, following Wall Street's overnight drop.
The S&P report said China would continue to be a key driver for regional economic growth and a catalyst for regional stocks, but warned that equity markets in the region are increasingly risky.
"2008 will be a more difficult year for stock market returns and we would not rule out the risk of a sharp correction," Tan said in a statement.
The report expects the so-called H-shares of Chinese firms listed in Hong Kong to continue to do well next year. It also predicts better performances for the markets in Hong Kong, South Korea and Thailand next year, while it was less optimistic about the Japanese market.
As for the TAIEX, which closed at 8,937.58 yesterday, S&P offered a "marketweight" recommendation for the index with a target of 10,000 points next year.
S&P also expressed caution on the prospects for credit quality for the regional corporate sector.
While the overall credit quality of Asia-Pacific companies has stood up fairly well to the recent liquidity crunch in short-term debt markets, this stance could be undermined next year by growing cost pressures and tighter access to funding, especially for firms whose risk profiles have been negatively affected by acquisitions and business expansions, S&P said.
As a result, more corporate defaults and credit downgrades are expected next year, it said.
"The balance of our rating outlooks on the corporate sector suggests there may be more rating downgrades than upgrades among Asia-Pacific companies in 2008," Ian Thompson, S&P managing director and chief regional credit officer, said in the teleconference.
"Casualties are expected, especially outside the financial sector," he said.
Taiwan's corporate credit outlook remained stable on the back of strong export performance, Ryan Tsang (曾怡景), S&P senior director for corporate and financial institution ratings, said in a statement.
However, the "overall credit profile of rated corporates in Greater China will become riskier as more high-yield issuers tap the market," he said.
Thompson expects the region's economies to grow more than 7 percent on average next year, with China growing at a rate between 10 percent and 10.5 percent. He forecast a 4.4 percent to 4.9 percent growth rate for Taiwan.
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