Eurozone Situation Still Main Risk To Asia-Pacific Sovereigns: S&P

Eurozone Situation Still Main Risk To Asia-Pacific Sovereigns: S&P

The developments in Eurozone still remained a major threat to the creditworthiness of Asia-Pacific sovereigns, Standard & Poor's said in a report on Wednesday.

The risks of instability are still substantial, despite the more decisive actions shown by Eurozone policymakers, the agency said. The main threat remains centered around an unexpectedly severe deterioration of the Eurozone's economic and financial situation, it noted.

"Reforms that address fundamental imbalances in the currency union are still in the early stages of implementation," S&P credit analyst Kim Eng Tan said. "If investors perceive that European politicians are losing the willingness to continue with reforms or if major policy mistakes occur, it may send another financial and economic shock across the world." S&P also noted that there is a "significant chance" that the credit rating on India could be lowered in the future. India was the only Asia-Pacific sovereign to see a negative rating action during the past six months.

"In our view, there is a significant chance that this trend could eventually affect political, economic, fiscal or external factors to lower the credit rating on India," Tan said. The announcement of another round of unconventional monetary easing in the U.S. also brings additional risks to some Asia-Pacific economies, S&P pointed out.

Tan warned that if inadequate policy responses to additional monetary easing from abroad fuel further financial leverage, the risks to economic and financial stability could mount, and that could damage sovereign creditworthiness.

Of the 22 rated sovereigns in the Asia-Pacific, S&P raised the credit ratings on the Philippines and South Korea during the past six months and revised the outlook on Vietnam to stable from negative.

The agency, however, does not expect the positive trend of rating changes to continue in the coming 12-18 months.