Only 6% of rated companies in Asia-Pacific have an overall high exposure to US tariff-related risks, the lowest globally, reflecting the region’s resilience amid trade and market upheavals, according to Moody’s Investors Service (Moody’s Ratings).
In a sectoral report on Tuesday, Moody’s Ratings said the majority of Asia-Pacific non-financial companies are largely insulated from the three channels of risk transmission — trade, macroeconomic and financial — that have emerged following recent global tariff developments.
“Most of these companies are vulnerable to financial market volatility, with weak liquidity and substantial debt maturities over the next two years,” it said.
The credit rating agency said Asia-Pacific companies benefit from large domestic operations and globally diversified businesses and supply chains.
“A majority of the rated companies (86%) have low trade exposure to the US, with less than 10% of revenues from the US that are subject to tariffs, or less than 10% of total costs derived from imports from the US that are subject to tariffs,” it said.
The report, which focuses on the risk assessment for around 450 rated companies in Asia-Pacific, noted that only a small number of firms (1%) primarily in shipping and consumer products industries are highly exposed to US trade-related risks.
From a macroeconomic perspective, Moody’s Ratings said exposure is high for the automotive, transportation (shipping and airlines), and energy sectors.
“Tariffs have the potential to dent economic growth and consumer spending and strain interconnected global supply chains.
“Weak consumer demand and elevated geopolitical risks will drive volatility in commodity prices, hurting commodity producers’ earnings,” it said.
Still, rated Asia-Pacific companies in these high-exposure sectors are better positioned than those in other regions, because of their large domestic presence or globally diversified operations, it added.
Meanwhile, Moody’s Ratings said financial risk is not industry specific but tied to credit quality.
“Financial risk is high for 25% of high-yield non-financial companies in Asia-Pacific.
“Two-thirds of these companies are rated B3 and below and they have weak liquidity, with sources of cash — made up of cash on hand and expected cash flow from operations — insufficient compared to projected cash outflows including capital spending, shareholder distributions and debt maturities,” it said.
Given insufficient internal sources, lower-rated companies are reliant on external funding sources, the availability of which can be uncertain, especially during periods of market stress.
“Despite these risks, Moody’s Ratings projected (in February) that the trailing 12-month high-yield corporate default rate in Asia-Pacific will remain steady at 4.1% by the end of 2025 — unchanged from year-end 2024 and below the 10-year average of 5.7%.
“The overall resilience of the Asia-Pacific portfolio is also underpinned by the presence of government-related issuers and companies affiliated with large, financially strong business groups, many of which maintain long-standing relationships with established domestic and foreign banks and have a proven track record of accessing domestic capital markets,” it said.
Source: theedgemalaysia