MARKETS & INVESTING | Staff Reporter, Singapore

Asian Liquidity Stress Index stays strong for May

That is with only 12.3% of the Moody's rated portfolio of speculative-grade, non-financial corporate debt issuers deemed as having inadequate liquidity.

"Market concerns about a choppy global economic recovery have yet to diminish the liquidity of speculative-grade companies in Asia, and there is little sign so far that risk aversion in financial markets is affecting the Asian economies, or the ability of companies in the region to access capital," says Laura Acres, a Moody's Vice President and Senior Credit Officer.

Acres was speaking on the release of the May Asian LSI and its accompanying report, which she authored.

Underlying the strength in liquidity is a receptive bond market that has remained willing to lend to speculative-grade companies, and high-yield bond issuance continues unabated in the Asia-Pacific region.

"At the same time, the Asian LSI has held near this current level throughout 2011, suggesting a plateau for speculative-grade liquidity has been reached, and little room for improvement. The index, which falls when corporate liquidity appears to improve, remains well below the peak of 37% reached in the fourth quarter of 2008," adds Acres.

At these low levels, the Asian LSI is further signaling a very low probability of default for high-yield corporate issuers, according to the report. Moody's takes a 12-18-month view in its assessment of a company's liquidity position, and has found the Asian LSI to be a good leading indicator of directional shifts in the corporate default rate.

In this context, Moody's trailing 12-month speculative-grade default rate forecast calls for a very low rate of less than 2% for the foreseeable future, and compared with a peak in the high teens during the global financial crisis.

Moody's Asian LSI, published monthly, examines liquidity trends throughout the Asia-Pacific region (ex-Japan and Australia) for the Moody's rated speculative-grade portfolio and quantifies the proportion with inadequate liquidity.

It covers 106 rated companies, across 12 countries and 24 core industry groupings and accounts for about US$48.2 billion of rated debt.

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