Kuala lumpur: Overall credit strength across South and Southeast Asia is expected to remain stable over the next 12 to 18 months, despite the challenges posed by a strong US dollar. This is according to Moody's Ratings, which released its latest report on nonfinancial companies in the region today. The report highlights that a majority of rated issuers, comprising 83 percent, either lack significant foreign exchange exposure or possess sufficient financial buffers to withstand further currency depreciation.

According to BERNAMA News Agency, Moody's noted that while Malaysia's ringgit and Thailand's baht have appreciated against the US dollar over the past year, supported by robust commodity exports and capital inflows into manufacturing, other currencies like Indonesia's rupiah and India's rupee have hit record lows. The Philippine peso has also depreciated significantly, with these three currencies declining between 10 percent and 12 percent over the past year.

The report explains that currency depreciation across South and Southeast Asia has been exacerbated through 2025 and 2026 by factors such as the escalating conflict in West Asia, an associated oil-price shock, US tariffs, and outflows of foreign capital. The credit effects of currency depreciation are seen through differences in revenue and cost currency profiles, impacting various sectors differently.

Moody's highlights that sectors with significant US dollar-denominated costs and primarily local-currency revenues, such as airlines and Indian oil marketing companies, are under the most pressure due to limited natural hedges. Conversely, companies in sectors like mining, commodities, and information technology services, which have US dollar-linked revenues, benefit from a natural hedge that supports local-currency profit margins during periods of depreciation. Exporters, in particular, gain an advantage as their products and services become more competitively priced in international markets.

The agency also points out that companies with substantial US dollar debt and largely domestic revenue bases face challenges related to higher debt-servicing costs and increased repayment obligations when local currencies weaken against the US dollar. Despite these pressures, Moody's does not anticipate a significant rise in interest expenses for rated companies, as policy rates across much of the region have already increased over the past three years in line with the US Federal Reserve's tightening cycle, limiting further borrowing cost increases.

Nonetheless, companies relying on foreign-currency debt might encounter higher hedging costs if the US dollar remains strong, potentially increasing overall financing expenses despite stable base interest rates.