Hong Kong, Japan, Taiwan on credit watch as China demand dips

PARIS – At its 2016 Country Risk conference, global credit insurer Coface has held its A1 ratings for Hong Kong, Japan and Taiwan, but put all three on negative watch.  Canada, which had been on an A1 rating with negative watch has been downgraded to A2. Italy, with a B rating, has been put on positive watch. Brazil is downgraded from B to C.

Coface says the three risks to monitor in 2016 are weak growth, political tensions and company debts in emerging economies.

It says that the advanced economies have many causes for concern, including financial market volatility, cheap oil and the Chinese slowdown. In emerging countries, in addition to sluggish growth, there is increasing company indebtedness.

Coface says increased political risk is likely to affect business confidence in all regions.

The company is forecasting “soft” global growth of 2.7 per cent in 2016 (after 2.5% in 2015). Growth in the advanced countries is estimated at 2%.

Coface says Japan is among the potential victims of the ‘more-pronounced-than-expected” Chinese slowdown, given that 18% of its exports are destined for China.

“Weak growth (estimated at 0.9% for 2016), the persistent risk of deflation and the indispensability of fiscal consolidation explain the placing of Japan’s A1 assessment under negative watch,” Coface says.

“Not surprisingly, the decrease in demand and in tourism from mainland China will continue to affect activity in Hong Kong and Taiwan, also under negative watch.”

The situation in emerging countries, where growth has halved in five years (3.9% expected in 2016), is further complicated by the growing indebtedness of companies affecgted by both the drop in commodity prices and the highly-expansionary mneary policies which followed the Lehman Brothers crisis,” Coface says. “Only Central Europe remains unaffected at this stage.”

According to Coface economists, Chinese companies are the most indebted. “Their debt represents more than 160% of GDP and 60 points more than in 2008,” Coface says.

“Following China are Turkey (+30 points), Brazil (+17 points), Russia (+14 points) and Malaysia (+11 points).” www.coface.com (ATI).