In total, 21 of Asia’s 32 countries have undergone a trend decline in risk during the last six months.
Economists’ opinions of Asian sovereigns remained largely unchanged in the wake of the global financial crisis, as European ratings plunged in response to the troubles of the eurozone. However, confidence in Asia Pacific sovereigns is being undermined by reduced growth prospects – and deteriorating perceptions of political risk – in China, and as the continuing turmoil in Europe affects trading links and supply chains.
Country risk scores in Asia have remained relatively robust, with an average score decline of just 0.2, during the last six months, compared with declines of 1.8 points for the eurozone and 0.8 for the G10. However, the pattern of increased risk has resulted in several of the region’s main emerging markets succumbing to lower scores, including Indonesia, Malaysia, Philippines, Singapore, South Korea and Taiwan.
Furthermore, several East Asian countries, including China, Hong Kong, Singapore, Indonesia, Malaysia and Vietnam, have experienced substantial downward shifts in economic assessment scores, signalling their exposure to the darkening global macro outlook in the eyes of economists.
Among this group, the Philippines – down 0.4 points since January – ranks lowest globally, at 66 on the global scale. Singapore and Hong Kong on 82.2 – both down one place in the rankings – remain the region’s safest sovereigns.
Thailand has also been bolstered by an improved economic risk assessment as the country recovers from last year’s supply shocks caused by flooding. The sovereign has seen its score improve by 1.7 points since January on the back of a 0.6 points rise in its economic assessment score, helping the country climb seven places in the rankings to 46.
Meanwhile, declining scores for India, Pakistan and Sri Lanka indicate that domestic political and internal structural risks, as well as weakened cross-border trade flows across the Indian sub-continent, are factors contributing to the heightened Asia risk outlook.
Despite a heavily over-subscribed $1 billion bond placement in July 2012, Sri Lanka has suffered the second-largest score decline in the world (behind Syria), falling 6.2 points to 42.6. Although the authorities have taken measures to correct the large current-account deficit and adverse debt dynamics – boosting confidence in the government’s borrowing requirements – contributors remain concerned by the twin effects of slower growth in India and currency depreciation.
The falling score has taken Sri Lanka down 11 places in ECR’s global rankings since the start of the year (to 81), and means the country has been overtaken by 10 other sovereigns – among them two of the fast risers in the region: Armenia and Azerbaijan.
Pakistan has slumped 10 places, despite an improvement in its economic risk assessment, as deteriorating relations with the US, a weak domestic security situation and political problems related to a Supreme Court ruling over the ineligibility of the prime minister weigh down on the country’s profile.