Malaysia among Apac countries with opportunities amid continued US-China trade, tech competition, says Moody’s
05 Feb 2024
The continued competition over trade and technology between China and the US — despite continuing to disrupt supply chains — presents opportunities for economies with strong manufacturing bases and good infrastructure, including Malaysia.
In a statement on growth headwinds and funding conditions in Asia Pacific (Apac) in 2024, Moody’s Investors Services said it sees a number of global credit themes that will shape credit conditions for Apac this year.
Firstly, the peaking interest rates may lead to gradual monetary easing later in the year, but Moody’s expects policy rates to remain above levels seen in the last decade for most of the region, which will increase borrowing costs and slow economies.
Secondly, Moody’s sees structural shifts unfolding in the region, as China’s structural challenges from debt, demographics and productivity growth weighs on its medium-term growth profile.
“The proliferation of new technologies, such as artificial intelligence (AI) for example, could help mitigate ageing demographics facing the region. Thirdly, polarisation at the global level will continue to shape industrial policies and investment decisions.
“Competition over trade and technology between China and the US and its allies will continue to disrupt supply chains and influence investment decisions in Apac,” said the credit rating agency in the statement on Monday.
Competition over trade and technology between China and the US will continue to disrupt supply chains and influence investment decisions, said Moody’s.
The rating agency pointed out that the strict controls imposed by the West on China’s ability to obtain or build advanced computing chips will slow the development of the Chinese semiconductor industry.
Western countries’ technology- and security-related regulations and investment policies will also raise barriers to the integration of China’s AI industry with the global market.
“That said, this could present opportunities for economies with strong manufacturing bases and good infrastructure, such as Vietnam, Thailand and Malaysia: countries that have generally sought to maintain their neutrality and openness to trade through participation in the US-led Indo-Pacific Economic Framework and China-led Regional Comprehensive Economic Partnership.
“Beyond Sino-US tensions, tensions in the South China Sea and the Taiwan Strait pose risks to the region’s supply chain. The escalation of military conflicts in the Middle East adds further risk to the region,” stated Moody’s.
Having said that, Moody’s said Apac’s economic growth will continue to outperform most other regions, as headwinds will be mitigated by robust domestic demand in large emerging markets, such as Indonesia and India.
Under such geopolitical uncertainties, coupled with still-tight funding conditions and slow growth, Moody’s said these headwinds would impair Apac countries’ deficit consolidation and debt reduction.
“Larger debt burdens with higher interest rates have led to a significant deterioration in debt affordability post-Covid in emerging and frontier economies such as Pakistan and Sri Lanka,” it said.
However, Moody’s said slowing policy rate tightening in the US could alleviate some currency pressures for both higher-rated and lower-rated sovereign debt papers.
“Currency weakness in Apac has been pronounced amid the US dollar’s broad strength since 2022. A stabilisation in bilateral exchange rates with the US could bring some relief to holders of foreign currency debt,” it said.
“A number of Apac governments have reduced their exposure to foreign currency denominated borrowings post-Covid, although several frontier market sovereigns continue to maintain very high levels of foreign currency debt, including Sri Lanka, Laos and Mongolia.
“However, foreign currency denominated debt in some countries such as Cambodia, the Solomon Islands and Bangladesh are on concessional terms, mitigating liquidity risks and potential currency mismatches,” it added.
Source: The Edge Malaysia
