EMERGING MARKET MACROECONOMIC, CREDIT CONDITION TO REMAIN RESILIENT IN 2026 -- MOODY'S RATINGS

KUALA LUMPUR, Nov 17 (Bernama) -- Moody’s Ratings expects emerging market (EM) macroeconomic and credit conditions to remain resilient in 2026, mirroring this year’s performance.

As geopolitical and policy shifts ripple across EMs, the rating agency said EM governments are focusing on their domestic priorities and bolstering cross-border relationships as they seek to navigate tariffs, United States (US)-China tensions and other geopolitical stresses.

“Elections in a number of EMs bring the potential for policy changes, and societal opposition to new and existing policies will continue pushing some EM governments to prioritise social stability over long-term reforms,” it said in a statement today. 

In response to tariffs the US imposed this year, Moody’s Ratings emphasises that EMs are diversifying trade relationships further.

“They are negotiating bilateral deals with the US, strengthening ties with China, and striking new or updated agreements with the EU and other partners.

“These include the EU's recent trade deal with Indonesia, its accelerated free trade talks with India, and its negotiations with Thailand, Malaysia and the Philippines, as well as the trade agreement between the United Kingdom and India,” it said. 

Meanwhile, it said US policy rate cuts, increased investor risk appetite and a weaker US dollar, along with interest in diversifying away from the US, will continue to spur capital inflows to EMs.

“This will boost the growth of local currency bond markets, which have expanded rapidly over the past decade.

“Uncertainty in the lead-up to domestic elections and unexpected policy shifts within countries may, however, dampen investor appetite at times, particularly for debt from entities with relatively weak credit quality,” it added. 

Moody’s Ratings said artificial intelligence (AI) and data centres offer strong growth opportunities, especially for early adopters, but also come with execution, cyber and social risks.

“Data centre growth will continue in response to AI and cloud computing demand,” it said. 

It said geopolitics, mainly US-China tensions and data localisation, are shifting data centre growth from China to other Asia-Pacific EMs. 

“Malaysia, Indonesia, Thailand will be key beneficiaries as US, Chinese and local data centre operators expand into these countries. 

“Malaysia and Indonesia have also been direct beneficiaries of spillover demand from Singapore because of the latter's energy sourcing and efficiency requirements, and land availability limitations,” it added. 

Additionally, Moody’s Ratings noted that EMs tend to be more exposed to extreme weather events than advanced economies, but have fewer resources for adaptation and resilience.

“Investment is far below what is needed, given competing priorities and financing hurdles.

“Nearly half of EM sovereigns have high or very high credit exposure to physical climate risks such as floods and hurricanes, but relatively weak fiscal strength, limiting their ability to address these risks,” it added. 

-- BERNAMA