Fitch: APAC sovereign outlook stable despite growth challenges

Global rating agency Fitch recently released its Asia-Pacific (APAC) outlook for the year 2020. In its report, the rating giant held the sovereign outlook stable for the next 12-18 months.

Key quotes

APAC sovereign ratings span a broad range of developed, emerging and frontier markets. This is reflected in the dispersal of ratings from ‘AAA’ to ‘B-‘. The prevalence of stable rating outlooks indicates that the broad distribution is likely to remain intact over the next 12-18 months.

Virtually all Fitch-rated APAC sovereigns have seen a slowdown in growth in 2019, and many will see a further decline in 2020 under our baseline.  

This typically reflects the impact of US-China trade tensions and slower global demand. But country-specific factors are also at play. India’s slowdown is being driven by a domestic credit crunch, for example.

Plans for fiscal easing vary from modest loosening to accommodate automatic stabilisers as in Indonesia, Malaysia, and India, to more aggressive expansionary measures in South Korea and China.

China’s tax cuts and infrastructure spending, financed with local government special bonds, have so far helped the government avoid less transparent forms of stimulus that could be negative for the rating.

FX implications

Given the no major update from the news, markets show a less reaction to the news. In an otherwise case, the news could have offered noticeable moves of the safe-haven currencies like the Japanese yen (JPY) and Gold.