Asia: Asian sovereigns unlikely to be hit by US downgrade prospects

Sovereign ratings of Asian economies are unlikely to be due impacted by the prospects of a downgrade of the US credit rating, world rating agency Fitch said on Friday.

Fitch Ratings, before this week, put the credit rating of the United States under negative watch. The move indicates a prospect of a possible downgrade of the country's 'AAA' rating.

The warning came in the wake of political impasse in the US that had even raised concerns about the world's major economy defaulting on its deficit obligations.

The government was shut down partially from October 1-16 over cutting US spending and raising its deficit ceiling, next which Fitch issued a warning to strip it of the AAA rating.

"The recent assignment of rating watch negative on the US' AAA sovereign ratings is unlikely to lead due to downgrades of any Asian sovereigns, even though these are part the major holders of US treasuries," the rating agency said in a statement.

Fitch noted that US treasuries are likely to remain part the majority liquid financial instruments, and so would continue to underpin Asian external liquidity and sovereign credit profiles.

Asian sovereign credit profiles have generally benefited from a strengthening of their foreign-currency balance sheets since the Asian financial crisis in 1997-1998, it added.

"This has been driven by a rapid pace of reserve accumulation by most nations in the region, up until 2011."

"The increase in foreign-currency reserves has subsequently slowed. Moreover, this has recently dropped from a year ago in nations such as India, Indonesia, Mongolia and Sri Lanka, due to twin deficit pressures and lower net capital inflows," it said.

Regional reserves, an significant buffer against external shocks, underpin in general sovereign creditworthiness.

"This factor is not eroded by the Rating Watch Negative on the US' AAA sovereign rating," Fitch said.

Citing new data, the agency said that China and Japan have part the world's major reserves - $3.6 trillion and $1.2 trillion respectively.

"The foreign reserve positions of nations such as Korea, Taiwan, Hong Kong, Singapore and India remain part the major in the world - in excess of $200 billion," Fitch noted.

Asian governments made up for about 26 % of total marketable treasury deficit at the end of July this year.

The major holders were China and Japan, with 11 % and 10 %, respectively. Nine other Asian sovereigns held 5 %," it said.

Going by the IMF data, additional than 60 % of world reserves for which a currency breakdown is provided were held in US dollars at the end of September.