Trade curbs, tighter fund­ing the ‘ top risks’

> Seen as greater threat than in­ter­est rate shocks and geopo­lit­i­cal tensions, Moody’s poll re­veals

The Sun (Malaysia) - - SUNBIZ -

SIN­GA­PORE: Trade re­stric­tions and tighter fund­ing con­di­tions pose more of a risk to the re­gion com­pared to in­ter­est rate shocks and geopo­lit­i­cal tensions, said Moody’s In­vestors Ser­vice.

Trade pro­tec­tion­ism and the un­ex­pected tight­en­ing of fund­ing con­di­tions were each named by 42% of par­tic­i­pants as the main down­side risk to the re­gion, ac­cord­ing to Moody’s “CrossSec­tor – Malaysia – Heard From the Mar­ket: Trade Re­stric­tions, Tighter Fund­ing Con­di­tions Are Top Risks” re­port.

Par­tic­i­pants were polled on var­i­ous top­ics at the re­cent an­nual In­side Asean – Spot­light on Malaysia con­fer­ence. Of the re­spon­dents, in­vestors com­prised 55%, in­ter­me­di­aries 19%, is­suers 10% and oth­ers 16%.

Moody’s be­lieves both eco­nomic pow­er­houses will avoid a ma­jor in­crease in trade re­stric­tions de­spite the ris­ing un­cer­tainty and po­lit­i­cal risks, stem­ming from the US-China trade tensions – hence deem­ing geopo­lit­i­cal risks as a down­side risk for global and re­gional out­look.

House­hold debt was an­other area of con­cern in­di­cated by the re­spon­dents with 52.4% ex­press­ing con­cern over house­hold debt over cor­po­rate sec­tor debt. This is al­beit the re­ced­ing credit risk of the house­hold sec­tor which has de­creased due to debt delever­ag­ing, as house­hold debt fell to 84.3% of gross do­mes­tic prod­uct at the end of 2017, from 88.3% in 2016.

While cor­po­rate credit qual­ity risks are well bal­anced, house­hold lever­age rep­re­sented a mean­ing­ful tail risk de­spite re­cent struc­tural im­prove­ments.

As for in­ter­est rate shocks, Moody’s ex­pects global in­ter­est rates to rise very grad­u­ally, which will be sup­port­ive of credit con­di­tions in Malaysia.

“Moody’s view is that the re­cent cor­rec­tion in the global stock and bond mar­kets has taken place against the back­drop of stronger growth and the in­evitable nor­mal­i­sa­tion of in­ter­est rates in ad­vanced economies and that it does not al­ter the US and global out­look for growth.”

About 53% of the re­spon­dents are ex­pect­ing sta­ble credit con­di­tions for do­mes­tic banks in 2018.

In line with that, Moody’s main­tained a sta­ble out­look on all the rated Malaysian banks, and ex­pects the fi­nan­cial in­sti­tu­tions to ben­e­fit from sta­ble macroe­co­nomic con­di­tions. None­the­less, 63% of the re­spon­dents ex­pect global and re­gional credit con­di­tions will be broadly sta­ble in the near term.

On the adop­tion of elec­tric ve­hi­cles (EVS) in Malaysia, 41% thought that EVs would ac­count for only 1%-5% of all new ve­hi­cles sold by the mid-2020s, while 23% said they will ac­count for less than 1%.

“Moody’s also ex­pects the im­pact from the adop­tion of EVs to be mod­est in the emerg­ing mar­kets, in­clud­ing in South and South­east Asia. It ex­pects that oil de­mand will con­tinue to grow un­til 2040,” the rat­ing agency said.

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