Asean country risk: Malaysia and Philippines buck negative regional risk trend

By:
Matthew Turner
Published on:

Malaysia and the Philippines saw the largest improvements in overall risk assessment scores of any Asean countries in the Q3 results of the ECR survey – but worsening access to capital markets (ATCM) and bank finance had a negative impact for the region.

Malaysia and the Philippines were the only large Asean economies whose sovereign risk outlook improved during the third quarter of 2012, according to the results of Euromoney’s Country Risk Survey. Robust growth elsewhere in the region was not enough to support country risk scores for large economies such as Indonesia, Thailand and Singapore, which all saw declines during the period.

Worsening scores in the survey’s ATCM and bank finance category had a negative impact on country risk survey results for Indonesia, Thailand, Singapore and Vietnam. The weak growth outlook across the global economy, the continued uncertainty regarding the eurozone crisis and the approaching fiscal cliff in the US had a negative bearing on the outlook for capital flows into the region.

Leif Eskesen, an economist at HSBC in Singapore, says: “The region awaits either a gradual global economic recovery or a deeper global slowdown, which could mean feast or famine for capital flows and credit growth. Either way, policymakers need to get it right.”

More than 40 macroeconomists covering the Asean region took part in the quarterly survey, which measures analysts’ perceptions of political and economic risk in more than 180 markets worldwide.

Asean Country Risk Scores, Q3 2012

Country name

Rank

Tier

Q3

Q3 score change

Q3 rank change

Singapore

4

1

87.04

-0.99

-1

Malaysia

34

3

63.23

-0.9

0

Thailand

52

3

56.38

-1.08

-5

Brunei

55

3

55

0

2

Indonesia

64

3

51.17

-1.36

-4

Philippines

69

3

49.8

0.2

-2

Vietnam

89

4

39.59

-0.89

-4

Myanmar

152

5

21.37

0

-1

Cambodia

156

5

19.41

0

-1

Laos

179

5

6.02

0

-1



Asean overview

Malaysia’s overall Euromoney Country Risk (ECR) score improved by 0.9 points, to 63.2 in Q3 2012, bucking global and regional trends. Strong GDP growth forecasts of 5.3% in 2012 despite difficult global conditions, along with a healthy external position due to a high current account surplus of 5.9% of GDP, helped boost Malaysia’s score. This has left Malaysia with the largest score improvement in the region in Q3.

The Philippines also fared well in Q3, and was the second-strongest performer in the region for overall risk assessment. The Philippines overall risk assessment score has improved Q/Q on the back of 6.6% real GDP growth forecast for 2012 – the highest in the region. This has left the sovereign’s ECR score improving by 0.2 points, to 50 in Q3 2012, with a global rank of 69 for risk assessment globally.

Indonesia’s risk assessment deteriorated the furthest this quarter, after ECR analysts downgraded the sovereign by 1.4 points. Although Indonesia’s economy performed strongly in Q3, real GDP growth reached 6.2%. Such growth rates have raised concern among economists, with fears they might be pushing above the sustainable rate by a loose monetary stance, a point raised recently by ECR (Indonesia’s ECR score decline reflects overheating concerns).

Thailand’s score deterioration has left the sovereign slipping furthest in the Asean regional rankings, after falling five places to 52nd position globally in Q3 2012. Thailand’s growth is forecast to reach 5.5% in 2012. Although strong, analysts note that political risks still pose a threat to the country’s stability. 

Vietnam’s score slid by one point in Q3, coinciding with Moody’s downgrading of the sovereign’s foreign and local currency government bonds. 

Malaysia’s debt burden offset by favourable financing conditions

Malaysia’s score improvement was largely driven by improvements in the country’s economic assessment criteria, which improved by 0.3 points. Malaysia benefited from score improvements in the country’s bank stability, economic outlook and employment indicators.

The sovereign’s economy expanded by 5.2% y/y in Q3, leaving Capital Economics to revise its growth forecasts upwards for this year from 4.8% to 5.2%. However, with exports down 3% this quarter, Capital Economics predicts a slowdown in 2013, in keeping with consensus forecasts. 

“Malaysia is still heavily trade-dependent,” states Capital Economics. “Exports are equivalent to around 100% of its GDP, and they will continue to be a drag on growth over coming quarters. We expect the eurozone to head deeper into recession next year, and it looks unlikely that there will be a significant pick-up in the Chinese or US economies.” 

Malaysia’s government debt-to-GDP ratio of 53% remains stubbornly high, when compared with other Asean economies. This factor, combined with an expected budget deficit of 4.5% in 2012 – among Asia's biggest – means the government lacks fiscal space in raising government spending to counter the effects of external pressures.