The tariff effects on rated APAC corporations have been modest so far.
US tariff actions on APAC nations will remain fluid, with varying effects across countries and sectors. This creates uncertainty—and risk—for bondholders, the rating agency said recently in a report.
The indirect impact of potential weaker macroeconomic conditions poses a greater risk than the direct effect of tariffs levied on countries and sectors.
The auto sector in the region faces the most direct tariff impact. The chemicals and metals & mining sectors are most exposed to indirect effects, as these sectors are already facing structural and cyclical pressures.
About 80 per cent of the corporations S&P Global Ratings rates in APAC are investment-grade. They carry quite a bit of financial flexibility against immediate tariff impacts.
However, the indirect (or second order) effects could be pervasive. These include a global or regional slowdown, the report noted.
Tariffs may also amplify existing cyclical and structural pressures, such as overcapacity in China.
The risk of a sudden influx of cheap goods in regional markets to offset a loss of access to the US market also poses a significant threat to the region's steel, textile, apparel and chemicals sectors.
Additional import duties and measures by several countries in the region will further escalate risks for exporters.
“While the latest US tariff differential among Asia-Pacific countries has narrowed, we believe trade flows and supply chains will continue to reshape, and this presents a category of risk in itself,” said the report.
S&P Global expects the additional US tariff will unevenly hit Indian corporations. Exporters of capital goods, chemicals, automobiles and food and beverages will face the toughest adjustment. Pharmaceuticals and smartphones are insulated because of exemptions. But uncertainty remains especially for pharmaceuticals.
ALCHEMPro News Desk (DS)
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