Feb 01 - Emerging Asia's economies continue to outperform global peers, but positive rating
momentum has ebbed amid a slowdown both in sovereign balance sheet improvement and structural
reforms in key countries, Fitch Ratings said.
Fitch's Sovereign Credit Briefing concluded in Singapore today after a
successful stop in Hong Kong. Senior analysts and leading investors discussed
challenges shaping global growth and Asia-Pacific economies.
Fitch said weaknesses in the major advanced economies, particularly the
eurozone, exert a drag on global growth and sovereign credit quality. Seven of
the world's 10 largest economies are on Negative Outlook, including three major
'AAA'-rated sovereigns - U.S., UK and France.
The European Central Bank's announcement of its Outright Monetary Transactions
initiative in September has eased tail risks in the eurozone. This supports
Fitch's view that a break-up of the eurozone will be avoided, though resolution
of the crisis will be protracted.
Meanwhile, despite the recent suspension by Congress of the U.S. debt ceiling,
continuing disagreement over tax and spending decisions has the capacity to
prevent the adoption of a credible medium-term fiscal consolidation plan. This
could have negative implications for the U.S. recovery and its 'AAA' rating.
In emerging Asia, prospects for a downgrade of India's 'BBB-'/Negative ratings
will hinge on whether the authorities can stick with their reformist agenda and
consolidate public finances.
In Japan, the newly elected Abe government's stimulus plans are not in
themselves a negative rating trigger for the highly indebted Japanese sovereign
at 'A+'/Negative. Its ability to achieve medium-term fiscal consolidation is a
key rating driver.
China faces the twin challenges of rebalancing its economy towards consumption
and away from investment - a process that could prove bumpy - and managing the
consequences of the extraordinary run-up in leverage in its economy since 2008.
Fitch expects Chinese local government's funding gap to widen, due to an
economic slowdown, declining land sales and more spending on social welfare
mandates and infrastructure. The credit quality of Chinese local governments
varies widely. The systemic risk of these governments' financing platforms is
still controllable but reform may be needed in the medium term to mitigate
An audience poll conducted at the conferences showed how investors, bankers and
issuers in Asia view global issues. Two-thirds (66%) of the respondents do not
envisage a bubble developing in emerging Asian sovereign credit. Over 40% of
those polled think the greatest risk to the global economy is an escalation of
the eurozone crisis. The majority of participants (73%) think the RMB will not
become an international reserve currency within the next five years. According
to over 40% of the respondents, Germany (instead of the U.S., UK or China) will
be the highest-rated sovereign in five years.