LONDON & SINGAPORE & HONG KONG--(BUSINESS WIRE)--Results from Fitch Ratings' Asia-Pacific (APAC) fixed income investor survey highlight APAC investor concerns that geopolitical tension could upset regional credit markets and that Abenomics will not deliver sustainably higher economic growth for Japan. Since the survey closed on 25 November, some EM Asian currencies, asset prices and spreads have come under pressure, although generally less so than Russia.
Geopolitical risk was seen as a high risk to credit markets by 79% of respondents, a big jump from only 15% in Fitch's inaugural APAC survey in August 2013. This is broadly in line with a similar result from Fitch's latest European survey, where 85% of respondents highlighted geopolitics as a high risk.
Investor concern over high-profile global sources of risk such as the protracted crises in Ukraine, Iraq and Syria, rather than regional Asian issues may have driven the results. In Asia, inter-state tensions in the South China Sea, disputes between China and Japan, and between North and South Korea remained in the background in 2014. However, domestic political risks were highlighted in Thailand following the military takeover of the government in May, and by the outbreak of protests in Hong Kong.
A majority 70% of investors do not expect Abenomics to succeed in returning Japan's economy to a sustainable higher growth path. Just over one-fifth of respondents even fear the policy will do more harm than good by causing disruptive repricing in the government bond market.
Japan's macroeconomic performance is a credit and rating weakness. Fitch still thinks Abenomics has the potential to lead Japan onto a stronger trend nominal and real GDP growth trajectory. However, the Bank of Japan's aggressive easing underscores the challenges the authorities face in getting the economy onto a path of sustainably stronger real and nominal GDP growth via the strategy of Abenomics. Persistent weak real and nominal GDP growth has undermined Japan's public debt dynamics. The GDP deflator contracted by an average 0.5% per year from 1992 to 2013. Nominal GDP projected at JPY486.6trn in 2014 is not far above the JPY483.7trn in 1993.
Fitch's survey of major fixed-income investors was conducted from 9 October to 25 November 2014. The full survey report is now available on www.fitchratings.com or by clicking on the link in this media release.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Applicable Criteria and Related Research: APAC Senior Fixed-Income Investor Survey 2014