Singapore - Europe crisis impact on Asia "manageable"

SINGAPORE: The impact of the eurozone debt crisis on Asian companies should be "manageable" due to an increase in regional trade and a greater reliance on regional banks, Fitch Ratings said Thursday.

"The first route by which the eurozone crisis could be transmitted to Asia is reduced demand for Asian exports. But those companies primarily reliant on exports to European countries represent a relatively small group," it said.

"That's because a significant amount of trade in Asia, and particularly growth in that trade over the last few years, has been within the region," Fitch said in a statement.

The ratings firm added that large domestic markets in countries such as China, India and Indonesia will also help cushion any impact on companies if the eurozone crisis escalates.

"We believe they have sufficiently developed domestic demand characteristics to offset the worst of any eurozone contagion for the majority of corporates whose business is largely domestic or regionally focused," it said.

Some Asian companies however are more exposed to the European crisis than others.

In consumer electronics, Japanese firms such as Sony "are more exposed to economic weakness in developed European markets than Korean competitors such as Samsung, with its focus on developing markets," Fitch said.

For automakers, both Japanese and Korean companies will feel some impact due to slower demand from Europe.

However, Japanese carmakers are more exposed to a further slump in the United States than in Europe, Fitch said.

Apart from weaker export demand, another way the eurozone crisis could affect Asian firms is through reduced access to funding.

As part of a solution to the eurozone problem, banks holding bonds issued by debt-stricken Greece will write down 50 percent of their claims and European lenders must raise their tier-one capital adequacy ratios -- measures likely to result in lower bank lending.

But Fitch said Asian companies "are in a stronger position now" than when they were going into the global economic downturn in 2008, and that most of these firms rely on local or regional lenders for their funding needs.

- AFP/ck


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