Bangkok--14 Oct--Fitch Ratings
Fitch Ratings sees stabilisation of corporate performance and corporate rating outlooks in the Asia-Pacific (APAC) region outpacing stabilisation in other geographies, albeit with slower progress for issuers in globalised sectors, and with some residual downside risk emanating from the potential for a double-dip recession. For those sectors where Negative Outlooks currently remain in place, Fitch anticipates stabilisation of those Outlooks occurring by mid-2010, although it notes actual recovery in operating performance will lag Outlook stabilisation by between two and four quarters.
"Corporate ratings in the region have not been immune from global trends," notes Tony Stringer, Head of corporate ratings for APAC. "However Fitch's expectations for relatively stronger growth in local economies, underpinned by less troubled regional banking systems, support faster stabilisation of corporate rating Outlooks for the more regionally-focused sectors, even while the global recovery remains fragile. Additionally, it is noteworthy that rating Outlooks for a number of cyclical sectors in the APAC region are already predominantly stable, in contrast with their counterparts in other regions," added Mr. Stringer.
In a report published today - Stabilising Corporate Ratings in Europe & Asia-Pacific - Fitch presents a more detailed look at its bottom-up forecasts for the timing of stabilisation of rating Outlooks and, ultimately, issuer performance. Many sectors with strong regional drivers and robust local demand - including the otherwise challenged real estate, natural resources and steel sectors - face less acute pressure from global macroeconomic trends than their peers in other regions and consequently less downward pressure on ratings. Threats to the credit profiles of these issuers are likely to stem increasingly from prospective M&A activity and the consolidation that Fitch anticipates will occur in the natural resources and commodity sectors in the region.
In contrast, globalised sectors - albeit with APAC participants typically expected to exit the recession with an enhanced competitive position - will nonetheless track their respective industry cycles in reaching a rebased, lower equilibrium in financial and operating performance. "For these sectors, including technology, automotive and shipping, Fitch expects rating Outlooks to return towards long-run average levels of rating stability by mid-2010, as residual uncertainty over the scale of recession-led damage to credit profiles dissipates," notes Mr. Stringer.
Stabilisation of Outlooks for these global sectors before mid-2010 currently appears an unlikely prospect. A significant driver of the high current level of negative Outlooks - and a constraint on their potential stabilisation - remains the uncertainty surrounding the robustness of the global recovery. In particular, the fragility of the recovery in advanced economies remains a concern to Fitch, raising the spectre of a double-dip recession as a non-negligible risk.
Fitch's macroeconomic views already incorporate its bottom-up expectations of continued conservatism from large corporates in their capital investment plans. However, while Fitch's central ratings cases already assume that the current recovery will be the weakest since the Second World War, evidence over the next two quarters of weaker-than-projected growth, particularly in private sector consumption, or of renewed problems in the world's banking systems, could delay or even reverse the trend towards issuer and rating stabilisation.
The report, titled Stabilising Corporate Ratings in Europe and Asia-Pacific, is freely available to non-subscribers for 7 working days from the Corporate section of Fitch's website, www.fitchratings.com.
Contacts: Tony Stringer, Hong Kong, +852 2263 9559; Richard Hunter, London, +44 20 7417 4362; John Hatton, +44 20 7417 4283.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935, Email: [email protected]; Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].