KUALA LUMPUR (Jan 27): Asia will be resilient to global macroeconomic challenges in 2015, with less vulnerability to external shocks than other emerging economies and with sound fundamentals that compare well with many regions in the world, according to Moody’s Investors Service.

In a statement Tuesday, a Moody’s Chief Credit Officer Michael Taylor said that as global growth remains subdued with brighter prospects in the US offset by lacklustre growth in the Euro Area and Japan, and China's ongoing slowdown, Asia's resilience will become increasingly evident.

Taylor said global challenges for 2015 include the US Federal Reserve taking the first steps to normalise monetary policy, sustained low commodities prices and China's rebalancing.

But Asia is supported by healthy external vulnerability metrics and the policy space to support growth through accommodative domestic monetary and fiscal policies, he said.

Moody's expects capital inflows to Asia Pacific to moderate in 2015, offshore borrowing costs will remain below historical norms, reflecting Asia's sound fundamentals.

It said the region's status as a net oil importer and the opportunity for governments to pare back subsidies mean that falling crude prices will be credit positive for much of the region.

However, Moody's identified four key risks for the year ahead; a
deeper-than-expected property downturn in China, high leverage in certain sectors, renewed eurozone concerns and a spike in global financial market volatility.

Moody’s said a 10% fall in property sales volumes, accompanied by a 10% fall in prices, could shave up to 2.25 percentage points off Moody's baseline growth assumptions for China.

The rating agency said elevated household debt to GDP ratios in certain areas in Asia—Malaysia, Thailand, and Singapore, among others—could become a concern if interest rates spike during the year.

It also pointed to the rising leverage in the corporate sector throughout much of the region.

Elsewhere, it said renewed concerns in the Euro Area could undermine investor confidence and shrink demand—currently 10% of the total— for Asia exports.

“Finally, any of the above factors might in turn lead to a spike in global financial market volatility, which would have a negative impact on the cost of credit given the close correlation between the VIX index and Asian credit spreads,” it said.