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STANDARD AND POORS: Negative Bias For Australia's Corporate Ratings To Ease

The Ratings Agency Standard and Poors has this morning released a new report on the health of Australia’s corporate sector titled “Steady As She Goes”.

But this title belies the inherent message in the release, which is essentially that Australia, the Australian economy and corporate Australia is doing well.

As Standard and Poors noted in their report:

  • We expect the overall rating direction of the pool of Australian issuers to stabilize in 2014 as the economy steadies over the next two years despite fading mining investment. The net negative ratings bias ratio of the pool has eased to 5.0% at Sept. 30, 2013, below the ten-year average of 8.1%.
  • While weaker investment growth is likely to persist, subdued import growth and more production from previous mining capital projects should enable real GDP growth to reach 3% in both 2014 and 2015, up from a forecast of 2.5% for 2013.
  • For the first time ever, the percentage of issuers in the ‘BBB’ category and below (52%) exceed those in the higher categories (48%), reflecting a ten-year trend of the former issuer group (including noninvestment-grade issuers) disintermediating away from banks.

Which although it is still framed negatively (such is the language of Credit Rating Agencies), it’s actually a pretty positive outlook all things considered.

The interesting thing is that Standard and Poors have quite a solid outlook for GDP growth of 3% for the next two years, which is pretty solid given Australia’s headwinds.

Standard & Poor’s credit analyst Terry Chan said:

We therefore consider that as the economy picks up next year, this will underpin further improvement in the ratings trend.

It’s just another example of how Australia is being viewed from investors around the world and another example of why the Aussie dollar has roared back so strongly from the 88 cent lows a couple of months back.

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