HONG KONG: Moody’s Investors Service Inc. changed its outlook on Hong Kong’s Aa2 issuer rating to negative from stable on Monday, citing growing risk that protests will undermine the city’s attractiveness as a trade and financial hub.
The agency said the ongoing demonstrations could hurt government and policy effectiveness more than it had previously assessed, as well as damage Hong Kong’s credit fundamentals.
Still, it affirmed the Aa2 long-term issuer and senior unsecured ratings, saying they reflect the city’s strong buffers as it has minimal government debt and large fiscal and foreign-exchange reserves.
Hong Kong has been rocked by unrest this summer, with weekends marked by clashes between police, protesters and pro-China groups.
There’s little sign of any end in sight as demonstrators continue to call on the government to act on their demands, which include an independent investigation into the police’s use of force. The turmoil has affected transport networks and businesses, weighing on the economy and causing a slump in visitor numbers.
"While the outcome of the standoff remains highly uncertain, the longer it persists, the greater the risk that it precipitates a response from the authorities, which would demonstrate a tightening in the institutional linkage to China and signifies a diminution of the predictability of Hong Kong’s own governing and judicial institutions, ” Moody’s said in a statement.
Hong Kong Financial Secretary Paul Chan responded by saying the city’s financial markets and banking system have been operating as usual in the past few months.
"The linked exchange rate system is functioning well, banks are well-capitalized, liquidity management is sound, and there is no significant outflow of Hong Kong-dollar funds or from the banking system. Hong Kong and U.S. dollar deposits have remained stable, ” he said in a statement. "We do not agree with Moody’s decision to downgrade Hong Kong’s rating outlook.”
Earlier this month, Fitch Ratings Inc. downgraded Hong Kong as an issuer of long-term, foreign currency debt for the first time since 1995. Fitch said political turmoil in the territory raised doubts about its governance. - Bloomberg
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