Asia-Pacific Sector Outlooks Are Skewed, Report Says

SINGAPORE (S&P Global Ratings) Sept. 30, 2024–Amid a complicated macro landscape, prospects are diverging across economies and sectors in Asia-Pacific. That’s according to a report we published today, titled “Asia-Pacific Sector Roundup Q4 2024: The Great Divide.”

“We anticipate China’s growth will slow further in 2024-2025. On the other hand, the region’s emerging markets are riding a still-solid export recovery,” said S&P Global Ratings credit analyst Eunice Tan.

The landscape is nuanced. Bright spots include more capital flows into Asian markets on prospects of a global soft landing and interest rate differentials. Stronger currencies can lower the cost of offshore debt and widen financing options for some borrowers. Amid improving financing conditions, the appetite to refinance for expansion and mergers and acquisitions could return, and we anticipate this will take place in the consumer products and utilities sectors.

Overhangs include elevated geopolitical tensions, which could exacerbate trade tensions or push up commodity prices. The auto, metals, and technology sectors are most vulnerable to geopolitical dissonance between China and the West, which is heightened ahead of the upcoming U.S. presidential elections.

“Increasing trade barriers will close off opportunities for Chinese auto exports to the U.S and Europe; more trade restrictions could arise if other countries follow suit to protect local producers,” Ms. Tan added. “Meanwhile, China’s increasing exports of steel and end-products could exacerbate trade hurdles. The tech sector will face more regulatory uncertainty, and efforts to de-risk supply chains from China will continue.”

In China, the sticky property downturn and slower consumption are spilling over to downstream sectors and producers reliant on Chinese demand, such as building materials, chemicals and consumer-related segments. The latest monetary stimulus, announced Sept. 24, could support liquidity in the system, but cautious lending appetite and household spending might limit uplift. Riskier issuers, including some of China’s weaker local government financing vehicles, could still face refinancing pressure.

Our net rating outlook bias for Asia-Pacific issuers is steady at negative 2% as of end-August, but sector prospects remain skewed. The chemicals, transportation cyclical, building materials and real estate sectors have the largest negative outlook percentages. Gaming continues to outperform.