Sovereign Debt Analysis - Sovereign Risk: Broadly Resilient But Risks Lie To The South - SEPT 2017

With easy monetary policy globally likely coming to an end, credit and liquidity risks are coming to the fore. We maintain our view that the Asia region by and large has fairly low sovereign default risk as growth remains robust, external balance sheets are in good shape, and positive reform momentum continues. There are, however, nascent red flags forming. In this article, we identify three key themes in sovereign risk across the Asia region:

  • The outlook for Asia's sovereign credit risk profile remains stable and we do not see any country as being particularly at risk of default any time soon.

  • Indonesia's sovereign default risks are underpriced relative to Malaysia, and we expect the CDS spreads between the two countries to widen over the coming quarters.

  • Few Red Flags In The Region
    Asia-Sovereign Risk Heatmap
    Long-term political risk scores are out of 100, where a higher number indicates greater political stability. Source: BMI, 2017 forecasts - except for NIIP where the source is the latest IMF IFS figures, unless otherwise indicated. *BMI estimate based on current account data.

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