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S&P warns region’s outlook may weaken

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Confluence of China’s economic deceleration, global monetary tightening and the emergence of Covid-19 variants such as Omicron may weaken Asia-Pacific credit conditions, a Standard and Poor’s (S&P) report titled “Asia-Pacific Credit Outlook 2022: China Decelerates, Fed Deliberates” noted.

“A slower growth path and an uncertain credit trajectory could see fallout in some sectors and among highly indebted issuers. Issuers in sectors or geographies more exposed to Chinese demand are most vulnerable to knock-on effects from China’s slowdown,” S&P Global Ratings’ head of credit research, Asia-Pacific, Eunice Tan, explained.

The report noted as the Chinese property sector rides a downcycle tinged with weak investor sentiment and strict refinancing regulations, funding access is becoming narrower.

This has tightened liquidity access for many speculative-grade issuers.

While Asia-Pacific has seen little of the inflation pressures or associated monetary actions in the rest of the world, this will likely be more of a factor in 2022.

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In particular, the likelihood of Fed rate rises could strain many Asia-Pacific entities’ access to affordable funding in dollars.

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