Kuijs on Bloomberg | China’s Chip Moon Shot | APAC Sector Round-Up | Testing Private Debt Resilience | Global Offshore Energy

Welcome to the latest edition of Essential Economics! ?We kick off this week with APAC Chief Economist Louis Kuijs at the Bloomberg studios in Hong Kong talking about Japanese monetary policy and Chinese growth prospects. Our China research lab led by Clifford Kurz and Charles Chang analyzed that country’s chip “moon shot” given its struggles to make cutting-edge chips without imported technology. Our APAC credit team led by Eunice Tan and Terrance Chan broke down the sectoral effects of uneven GDP growth across the region and found that net negative bias is worse for building materials, REITS and business services. A cross-sector team led by Denis Rudnev looked at private debt through a credit lens and found that median credit metrics could approach precarious levels under moderate or severe stress scenarios. Finally, Grant Shallock and team wrote that offshore driller balance sheets are stronger after a wave of bankruptcies in 2020 and 2021 and that ratings will be relatively stable for offshore drillers under the assumption of $85 per barrel Brent.

Kuijs on Bloomberg Asia

Louis stopped by the Bloomberg studios in Hong Kong earlier this week for a wide-ranging interview covering Japanese inflation and monetary policy, China’s growth outlook, and our view on the near-term path for US policy rates.

To watch the full interview, click here.

China’s Chip Moon Shot

Our China lab led by Clifford and Charles write that Mainland China has a large mature-chip industry, but it remains unable to make cutting-edge chips without imported technology. This dependence means recent U.S.-led bans on the export of advanced chips and equipment to China will pose significant challenges to China's efforts to catch up.

China will channel its considerable resources across the public and private sectors to close the gap.?

To read the full report, click here.

APAC Sector Round-Up: Slowing Dragons, Roaring Tigers

Eunice, Terry, and team argue that economic growth prospects in the Asia-Pacific region are shifting from the East to the South. While our ratings outlook bias is nearly balanced at net negative 1%, sector outlooks diverge. The net negative bias is worse for building materials, REITS and business services.

Risks include China's property sector, rising debt-servicing burdens, a hard landing of the global economy, and borrowers' lack of ability to fully pass on higher costs to customers.

To read the full report, click here.

Testing Private Debt’s Resilience Through A Credit Lens

In an effort to provide insights on the broader private debt market, we generated a scenario analysis on more than 2,000 credit estimated issuers with more than $400 billion of aggregate outstanding debt to help assess middle-market issuer durability in the face of rising interest rates and margin erosion. Most borrowers for which we have credit estimates are highly leveraged, and median credit metrics could approach precarious levels under moderate or severe stress scenarios.

Although default rates have remained low, recent downgrade trends point to vulnerabilities in the middle market.

To read the full report, click here.

Global Offshore Energy: Road to Recovery

Grant and team argue that increased offshore spending will continue to support healthy drilling activity and ancillary services as utilization and day rates rebound. The nascent offshore wind industry has long-term growth potential with limited near-term impact.

Ratings will be relatively stable for offshore drillers under our assumption of $85 per barrel Brent.

To read the full report, click here.