Negative credit trends for A-Pac non-financial companies to continue: Moody's

Hong Kong, July 17 : Moody's Investors Service said on Friday it expects negative credit trends for Asia Pacific non-financial companies to continue through 2020 as global lockdowns have caused severe disruptions in economic activity during the first half of the year.
The economic recovery from the coronavirus-triggered global recession will likely be prolonged although the easing of lockdown measures in most countries will support a gradual recovery in H2.
"We forecast real GDP for G-20 economies to contract by 4.6 per cent collectively in 2020 and it is unlikely to revert to the pre-coronavirus level by 2021," it said in a sector in-depth report.
The economic outlook remains highly uncertain for all economies. The pace of recovery will be uneven across countries, depending on the scale and type of policy support as well as whether governments can reopen their economies while also safeguarding public health.
Moody's said the ability of businesses to recover depends very much on the pace of rebound in consumer demand which hinges on governments' ability to restore confidence by reducing the fear of contagion. The second wave of coronavirus infections, if this occurs, will cause renewed disruptions to economic activity.
The coronavirus pandemic has aggravated existing tensions on trade and technology between the United States and China, increasing economic protectionism with regard to trade restrictions, investment and technology transfers.
"This has resulted in increased economic and geopolitical uncertainty which weighs on economic recovery and companies' growth prospects," said Moody's.
Fiscal and monetary stimulus programmes of central banks in both advanced and emerging market countries since the coronavirus outbreak have helped stabilise financial markets and provided temporary liquidity relief to companies.
However, the operating performance and financing capability of companies, especially those with high leverage, are vulnerable to financial market shocks if the second wave of coronavirus infections occurs that necessitates renewed widespread lockdowns.
At the end of Q2, 29 per cent of the ratings in the Asia Pacific corporate portfolio had negative implications, up from 26 per cent at the end of Q1 and the highest level since the end of Q3 2016. The share of ratings with a stable outlook fell to 69 per cent from 71 per cent over the same period.
Asia, Japan, Australia and New Zealand portfolios demonstrated the same deteriorating trend, said Moody's.
Auto companies and gaming companies remained the most impacted amid the coronavirus pandemic with over 50 per cent of the issuers carrying ratings with negative implications.
In Q2, the rating trend for the Asia-Pacific rated corporate portfolio continued to be negative although the number of negative rating actions has abated. There were 86 negative rating actions in Q2 compared to 120 in the previous quarter and there were no positive rating actions.
Of the 86 negative actions, 18 are sovereign-driven negative rating actions related to India's sovereign downgrade, said Moody's.
Metals and mining, energy and property were the three major contributors to the non-sovereign-driven negative rating actions, registering nine actions in each sector.
There were five rated defaults in Q2, resulting in a total number of eight rated defaults in H1. Three of the defaults in Q2 were Chinese companies and two were Australian companies.