Asian financial markets face greater volatility in 2007: S and P

SINGAPORE, Dec 12, 2006 (AFP) – Asia-Pacific financial markets will remain generally strong but face greater volatility and higher risks in 2007, Standard and Poor’s said Tuesday.

The US-based credit watchdog said in a statement that the regional economic outlook remained positive despite an expected US slowdown next year.

But higher financing costs, increased corporate borrowing and a frenzy of mergers and acquisitions (M and A) will fuel market volatility and add to the risks faced by investors, it warned.

“Although the trend is still broadly positive for the year ahead, there will be some negative credit stories too,” said Ian Thompson, chief criteria officer for S and P’s Ratings Services in the Asia-Pacific region.

S and P predicted a “slight rise” in corporate defaults and more “fallen angels” — debt issuers moving off an investment-grade credit rating.

“At the same time, a continued boom in M and A in the region will increase share price volatility and the credit profile of potential acquirers and target companies, raising new uncertainties for debt and equity investors,” it said.

Lorraine Tan, vice president at Standard and Poor’s Equity Resea