Fitch Ratings said on Tuesday that three of the 18 Asia-Pacific sovereigns it rates are on negative outlook with one on positive and the rest on stable outlook, according to its November report.
The only positive is for New Zealand as Vietnam, which was rated B+ with positive outlook in the previous report has been upgraded to BB- with stable outlook, on the back of improved macroeconomic stability and stronger external balances, Fitch said.
Structural economic challenges, including China's rebalancing and reform processes, and tighter US monetary policy, are contributing to the broadly stable outlook for regional sovereign credit, according to the ratings agency.
Japan, Malaysia and Mongolia
These are the three countries with negative outlook in the Fitch list. Japan was affirmed A+ in May 2014 on erosion of credit profile by high and rising public debt ratios.
Fitch said Japan's future now lies on the likelihood of the next round of sales tax hike as the country is burdened with huge public debt.
"Abenomics could break Japan out of its downward spiral if nominal and real GDP growth can be strengthened sustainably as stimulus wears off," Fitch said.
For Malaysia too, public finances continue to be a key rating weakness, and the threat of twin deficits looms large for the Southeast Asian country, Fitch said.
"The 2015 budget maintained fiscal consolidation stance by announcing certain tax and subsidy reforms; however, the broader public sector position continues to weaken - % GDP deficit was 13.6% in 2013. Also, declining current account surplus highlights increased risk of "twin" fiscal/external deficits," the rating agency said.
In Mongolia, loose macro policy settings pose growing risk to economic and financial stability, Fitch said.
Inflationary pressures are much higher with CPI rate at 13% and budget deficit of 11% is also huge for Mongolia.
In addition to that, foreign exchange reserves are down 31% year-on-year by September and the currency has weakened around 10%. Non-performing loans are growing at 10%, complicating the case of the country that borders China and Russia.
New Zealand Positives
Successful fiscal consolidation is mainly helping the outlook for Kiwis with macroeconomic record and prospects supportive, Fitch said.
"Fiscal consolidation is strengthening the resilience of the sovereign credit profile. In the FY2015 budget, the government projected its first fiscal surplus since 2008, capitalising on the strengthening economy. The consolidation drive seems supported across the political spectrum," the rating agency said.
Fitch said it expects real GDP growth of 3.5% in 2014 and 2.9% in 2015 on the back of reconstruction in Canterbury and a housing boom.
China's A+ rating with stable outlook was affirmed in April and the country's rating is supported by sovereign balance sheet of $3.9tn in reserves; 52% general government debt/GDP in line with peers, Fitch said.
For China, key credit weakness is structural: twin imbalance of high growth in capital spending and credit, the rating agency said.
Fitch sees no "hard landing" for the world's second largest economy, but said its real estate sector poses near-term downside macro risk.
India's ratings reflect the balance between high foreign exchange reserves and real GDP growth compared with its peers, and weak fiscal balances and low governance standards, Fitch said.
The government's 3% fiscal deficit target by 2017 March will be constructive if achieved but further revenue-strengthening or expenditure-saving measures seem needed to reach these targets, according to the rating agency.
"The economy has lost much of its dynamism in recent years as a result of weak investment. Now a gradual pick-up in investment is expected, as election-related uncertainty has disappeared, and structural reforms are being gradually rolled out."
Fitch said it expects real GDP growth to pick up to 5.6% in FY15 and 6.5% in FY16 from 4.7% in FY14.