Risks will grow in 2007 for debt and equity investors in Asia Pacific, according to a report released Tuesday by Standard and Poor's.

The report combines Standard and Poor's expectations for equity markets, credit quality, and economic performance across the region.

According to the report, the positive economic and market conditions that underpinned Asia-Pacific markets in 2006 will persist in 2007, despite the US economic slowdown, and this will encourage greater corporate leverage, deepen the high-yield market and fuel an already over-heated M&A (mergers and acquisitions) market.

As a result, a slight rise in corporate defaults and more " fallen angels" (issuers moving from an investment grade credit rating to high-yield grade) are likely next year, the report noted.

At the same time, a continued boom in M&A in the region will increase share price volatility and the credit profile of potential acquirers and target companies, raising new uncertainties for debt and equity investors. In 2007, the rise of leveraged buy-outs and private equity investment in the region will exacerbate the risks, especially for bondholders, the report said.

Source: Xinhua