Asia credit: winners and losers of a rising USD

Asian credit vulnerability could mount due to a stronger US dollar, prompting investors to look at alternative forms of investment including local currency debt.

A strengthening US dollar and potential interest rate hike in the country are causing uneasiness among many investors who fear Asian corporates have become vulnerable to higher foreign exchange-denominated debt.

Corporates in Asia ex-Japan have trebled their FX borrowings from $700 billion in 2008 to $2.1 trillion in 2014, according to a Morgan Stanley report released on February 24. The region’s economies have also grown during that period, although not as fast, resulting in a foreign debt-to-GDP growth of 12.3% for these companies.

Although most Asian corporates that seek foreign funding are naturally hedged, one jurisdiction where investors should exercise caution is China, which houses the largest...

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