MANILA – An economist from the Asian Development Bank said on Wednesday that investor sentiment and capital flows in the Emerging East Asia region could be disrupted, after a series of credit rating outlook downgrades on major developing economies.
"Definitely a negative rating and economic outlook will negatively affect investor sentiment to the regional markets and this will possibly cause some capital outflows and also leading to currency stress in the regional markets." warned ADB economist Shu Tian.
On Monday, Fitch Ratings kept the Philippines' investment-grade BBB rating but lowered its credit rating outlook for the country due to the impact of the COVID-19 pandemic.
Earlier this year, Malaysia and Indonesia also received a negative credit outlook while Thailand has retained its stable outlook and Vietnam got a positive outlook for its rating from major credit rating agencies.
Tian noted, once capital flows out of the region, financial markets in the affected economies may also take a beating.
"There will be a decline in the demand for local currency assets in the domestic markets and this will also lead to some negative price impacts like a decline in the stock prices and an increase in borrowing costs in the bond markets," she said.
Tian also pointed out other key risks that may negatively impact regional financial markets, including a possible divergent track of monetary policy stances between advanced economies, particularly the US, and major emerging East Asian nations.
But she clarified, regional markets currently remain relatively sound in terms of several fundamental indicators.
"As we indicated in the Asian Development Outlook and also the Asian Bond Monitor, we noted that the regional markets still have solid fundamentals in terms of the good performance in trade, current account performance is good, we sufficient foreign reserves, and also the currencies, so far, have been valued at fair levels," Tian explained.
ADB recently launched its online macroeconomic data platform called "TrackingAsia" which gives a snapshot of key indicators of Asian economies namely China, the Philippines, South Korea, Singapore, Thailand, Indonesia, Malaysia, Vietnam, and the territory of Hong Kong.
The multilateral lender hopes this can give investors and policymakers what they need in terms of getting up-to-date economic information on Asian economies.