“While emerging Asia will continue to outperform globally, most economies in the region will see GDP growth slow further,” Michael Taylor, managing director and chief credit officer for Asia-Pacific, said yesterday.

“China’s slowdown will remain the main story, with economic expansion set to decelerate to 6.3 per cent in 2016 from 6.9 per cent in 2015.

“This development will have spill-over effects on regional growth through weaker trade and investment flows,” he said.

External vulnerabilities, such as current-account balances and foreign reserves, are comparatively well contained, while there is some policy space to counter unforeseen shocks.

However, after several years of rising leverage, corporate balance sheets are generally less healthy.

Slower growth will likely lead to a continuation of the ratings down-cycle observed last year, particularly for rated speculative-grade corporations with less financial flexibility.

“For non-financial corporations in Asia, our expectation is that their elevated leverage, slowing growth and deteriorating liquidity will lead to further downward ratings pressure and defaults,” said Brian Cahill, Moody’s managing director for the fundamentals group in Asia-Pacific.

“Roughly one-third of ratings outlooks for speculative-grade corporations in the region have a negative bias.” Commodities industries, in particular, will remain under considerable stress, given the low price environment. About 70 per cent of rated high-yield corporations with commodities exposure carry a negative ratings outlook, with a median rating of “B2”.

“Notwithstanding these headwinds, we do not expect Asia’s high-yield default rate to return to the peak level of 14 per cent seen in 2009, given accommodative monetary policy stances in the region, solid liquidity in local bond markets and banking systems, and manageable refinancing needs in 2016,” he said.

While rated infrastructure issuers are not immune to macroeconomic headwinds, such as demand risk, they are likely to remain resilient because they demonstrate monopoly-like characteristics in industries crucial to the economies in which they operate.

They also show low operating risk, and solid and sustainable underlying businesses.

“At the end of 2015, some 94 per cent of Moody’s-rated infrastructure issuers carried stable or positive ratings outlooks,” said Terry Fanous, managing director for public, project and infrastructure finance in Asia.

Slower growth, commodity-sector weakness and rising corporate stress will lead to a deteriorating operating environment and asset quality for most banking systems.

“Problem loans will continue to rise in most banking systems due to weaker trade and higher levels of corporate leverage,” said Stephen Long, managing director for Asian financial institutions.

“Such credit pressures are particularly evident in North Asia, where we hold negative outlooks for the banking systems in [mainland] China, Hong Kong and Mongolia.”

However, even in banking systems that show weaker balance sheets and earnings, such as China, the banks’ final creditworthiness should remain resilient thanks to reasonably strong capital buffers, healthy funding conditions and the strength of government support.