Wednesday 25 November 2020
 
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Covid will have lasting impact on EM credit: Moody’s

LONDON, 9 days ago

Despite a tentative recovery from the coronavirus pandemic, emerging market (EM) credit conditions will remain fragile and vulnerable to setbacks in 2021, Moody's Investors Service said in a new report.

“Credit fundamentals in emerging markets are unlikely to fully stabilize in the coming year,” said Rahul Ghosh, a Moody's Senior Vice President and the report's co-author. “Several important factors, such as the ability to restore revenue and earnings and adapt to emerging opportunities and threats, will shape performance across regions, sectors and asset classes.”

Higher quality EM issuers, particularly in Asia, will navigate 2021 fairly well, supported by strong economic or industry positions and healthy access to capital. But governments and companies with weaker credit profiles that have concentrated revenue streams or significant external funding requirements will endure another year of liquidity stress and, potentially, deteriorating creditworthiness.

Companies across retail, transportation and automotive related sectors will probably take several years to recapture pre-crisis profitability and sales levels amid sluggish demand. Furthermore, the impact of deteriorating asset quality on EM banking systems and structured transactions will come to the fore in 2021, particularly as credit forbearance and fiscal support for households and small businesses starts to taper.

For EM sovereigns, the key focus in 2021 will be stabilizing budget deficits and debt levels. A key credit differentiator will be how governments manage the balance between policy support and fiscal credibility. Financial conditions will remain broadly supportive for most major EMs thanks to ultraloose monetary policy globally. – TradeArabia News Service




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