Fitch Ratings: APAC’s high trade openness and exposure to US demand leave the region particularly exposed to US tariff risks, Fitch Ratings says in a new report. The report discusses questions raised by investors during recent meetings with Fitch for several APAC sovereigns relating to the trade war and other important developments in the region. The US is a major export market for China, Vietnam, Taiwan, Thailand and Korea, with manufacturing exports and investments an important driver of their economic growth.

Governments’ policy responses to the trade war will be key towards its impact on APAC sovereign ratings. Governments may opt to shore up economic growth with fiscal stimulus, which could significantly alter the outlook for public finance metrics over the medium term and sovereign credit profiles more broadly.

The trade war creates uncertainty, but all APAC sovereign Outlooks are Stable after the downgrade of China’s rating to ‘A’/Stable on 3 April from ‘A+’/Negative. This reflects Fitch’s expectation of a continued deterioration in China's public finance profile. In our view, sustained fiscal stimulus will support growth amid subdued domestic demand, rising tariffs and deflationary pressures.

The 15 April upgrade of Pakistan’s rating to ‘B-’/Stable from ‘CCC+’ reflects Fitch’s increased confidence that Pakistan will sustain its recent progress on narrowing budget deficits and implementing structural reforms, supporting its IMF programme performance and funding.

‘Asia-Pacific Sovereigns: Q&A’ is available at fitchratings.com or by clicking the link above.