Coface held its annual Country Risk Conference in Hong Kong which attracted more than 300 people attending the event. Top economists and executives from Natixis, European Union Office to Hong Kong and Macao, Moody’s Investors Service, DBS Bank, The Hong Kong Exporters’ Association and Triumph International Services gave their insights on economic developments in major countries around the globe and shared their views on business risk management at the conference. Below is an excerpt from the Coface press release:
The Risk of Contagion for other Asian Countries
Hong Kong and Singapore are both very exposed to the slowdown in China in two ways. Firstly, through their financial markets, since their stock markets are highly correlated with the Chinese market and as a result of cross-border bank loans their banks are exposed to the deterioration in the creditworthiness of Chinese companies. Secondly, through trade, because the proportion of their exports to China in high risk sectors is significant: 74% of GDP in Hong Kong and 15% in Singapore.
Financial and trade exposure in Thailand, Malaysia, Indonesia and Vietnam is significant because the proportion of exports to China is high. However high risk exports represent less than 10% of total GDP. They are therefore sufficiently solid to avoid their growth derailing if the Chinese economy manages a soft landing: a 10% fall in these countries’ exports to China would lead to a loss of growth of less than one point in these economies. Finally, these countries benefit from China’s declining competitiveness and consequently are seeing an increase in FDI. Trade relations between India, Philippines and China are limited, as are the risks of financial contagion.
Risk assessment on industries in Asia
- Energy : Although affected by the slowdown in China, the impact has been felt less in emerging Asia, since the public nature of the leading oil companies provides them with safeguards. However, there will be major repercussions for the players with less access to public financing.
- Automotive : The situation is more difficult in emerging Asia, which Coface has downgraded to “medium” risk. Sales growth fell to 2.6% in China for the first eight months of 2015. The slowdown in the Chinese economy and increased competition have had an impact on activity for manufacturers, who must adapt to a “new growth standard” far from the double-digit levels enjoyed in the past.
- Metals : The sector is also experiencing a worldwide fall in prices and has been hard hit by the problems of overcapacity in emerging Asia.
- Paper/wood : The sector is faced with overcapacity problems and competition from electronic media. However, in emerging Asia it is boosted by processing for export.
Source: Coface Hong Kong