Implications of US debt crisis

From Kim Eng:

In the event of a temporary default and/or a downgrade on the US’s
AAA credit rating, creditors would demand higher interest on US
treasuries while existing US debt holdings would decline in value.
Given that US debt is so widely held around the world, this will result
in another liquidity squeeze not unlike the 2008 subprime crisis and
will stunt the global economic recovery.

In the case of Singapore, we believe the domestic banks would be
able to weather a crisis, if any, better than most, given their limited
presence in the US and well‐capitalised position. Highly‐geared
companies that are dependent on the credit market will be most at
risk, particularly those with a heavy short‐term debt profile. In fact,
we have observed signs of share price weakness in companies like
Noble, Olam and Ezra as traders priced in this market risk.

At the other end of the spectrum, companies flush with cash may find
themselves in an advantageous position to seize M&A or privatisation
opportunities. In our coverage universe, these would include
Singapore Press Holdings, Venture Corporation, Boustead Singapore
and CWT.

We note that most companies listed on the Singapore Exchange are currently
in a much better balance sheet position than when the 2008 financial
crisis struck. However, until the US is able to resolve its debt ceiling
impasse over the next two weeks before the deadline on 2 August,
market sentiment will likely remain in check.