S&P glum on risks in China debt markets, but Moody's and Fitch more optimistic
Gobal rating agencies say Beijing's unprecedented intervention could affect financial firms but rule out systemic risk from the meltdown
Global rating agencies yesterday blasted Beijing's response to the recent stock market rout, saying the unprecedented intervention could hurt financial firms.
Moody's Investors Service pinpointed securities firms, insurance companies and banks as sectors likely to be hurt by the battery of measures to shore up the stock market when it went into a free fall recently.
As part of efforts to prop up the market, the country's 21 largest brokerage firms this month agreed to invest a combined 120 billion yuan (HK$152 billion) in exchange-traded funds.
Insurers were also mobilised into action, making them to pledge increased investment in stocks, while banks were encouraged to provide loans to companies to buy their own shares.
Moody's said these actions would be "credit negative", adding that "this allows them to increase their equity investments and exposure to stock market volatility".
Fitch Ratings said "the sharp fall in stock prices - and the authorities' reaction - highlights the relatively underdeveloped nature of the equity market".
"Policy intervention also raises questions about the pace of future financial reforms. This in turn underscores potentially significant operational risks for some financial institutions, especially brokers, which have exposure to - and operate in - the equity market."
Fitch, however, said the recent volatility should not pose a systemic risk to the real economy or the financial system.
Moody's held a similar view, saying the rout would only have a limited impact on Chinese debt issuers.
"The direct impact from heightened volatility in China's equity market on financial sector output growth will be limited, while the indirect effects of market uncertainty on consumer spending, employment and corporate investments will be similarly muted," said Michael Taylor, the managing director and chief credit officer for Asia-Pacific at Moody's.
There would be no spillover on the country's real economy from the stock market, Moody's said.
The agency has no plan to revise its growth forecasts that the economy will slow to a range of 6.5 to 7.5 per cent this year and 6 to 7 per cent next year.
Taylor said Beijing's intervention was "only a deviation from, rather than a repudiation of, its broader economic reform agenda".
Standard & Poor's, however, sounded more worried in a report released yesterday, pointing out that the corporate debt burden in the mainland was eight times that of government debt.
The ratio of corporate debt to GDP soared 160 per cent to US$16.1 trillion last year, from 120 per cent in 2013. That is twice the level in the US.
S&P said it believed China's corporate debt would rise to US$28.5 trillion in 2019, outpacing economic growth in coming years and could destabilise financial markets.
"The Chinese credit growth rate still remains faster than most, but the corresponding risks are rising as well," Jayan Dhru, S&P's global head of corporate ratings and infrastructure, said in the report.
S&P said China, the world's largest corporate debt market, would continue to grow but default risks were also rising.
"The rapid growth in debt, the opaque nature of its markets, high debt to GDP, and potential moral hazard created by state support all point to relatively high credit risks in China," Dhru said. "While some form of government support for [state-owned enterprises] is likely, its scope and effectiveness are uncertain.
"The mixed result of Chinese policymakers' intervention in the recent equity market turmoil is a case in point."
