Agency upbeat about outlook for 2018

CREDIT rating agency Moody’s Investors Service has given the thumbs up to Australia’s corporate bond market, saying it has a “stable” outlook for the year ahead.

In its latest annual assessment of Australian corporations, Moody’s said it had ranked 80 per cent of companies who issued bonds as stable.

There was a moderate level of debt due to be repaid, but this was unlikely to be a concern because most corporates had a high level of liquidity and cash on hand.

Fourteen per cent of corporate issuers, however, were rated as having a negative outlook and the balance of 6 per cent was positive.

The outlook is improved on last year when 76 per cent of corporates were ranked stable and 24 per cent were negative.

The improved conditions for companies related mostly to a pick up in the mining sector, compared with last year when the outlook for miners was less favourable.

Moody’s outlook for the metals and mining sector is stable and prices should “remain at levels that allow solid earnings”.

The agency also cited a focus on continued cost cutting and productivity but warned of “headwinds” from currency, labour, shipping and energy costs.

Despite concern about the impact of foreign retailers Amazon, Kaufland and Aldi, Moody’s also expects a stable retail and consumer market next year, although it warns there will be challenges.

“Competition from existing retailers and threats from new entrants are resulting in fierce competition and price deflation,” Moody’s senior credit officer Maurice O’Connell said.

“Quality of retail execution is a key driver of market share.”

Listed trusts also came in for some positive attention with operating incomes of Australian real estate investment trusts expected to be up 3 per cent with steady vacancy rates and fixed rent increases.

Office trusts were benefiting from their exposure to Melbourne and Sydney central business districts while even retail trusts were expected to weather softer consumer spending, the analysis found.

Construction and airlines were also highlighted as stable market sectors.

Earnings in the construction sector were expected to remain flat as the sector switched away from residential construction to infrastructure development.

Airlines, too, were forecast to have stable earnings, despite increased competition from offshore carriers entering the Australian market.