Mon, May 29, 2017 - Page 14 News List

HK secretary questioning Moody’s debt downgrade

Bloomberg

Moody’s Investors Service’s decision to downgrade Hong Kong’s debt rating last week was based on “shallow” evidence, Hong Kong Financial Secretary Paul Chan (陳茂波) wrote in a blog yesterday.

“The evidence on which the ratings company mechanically downgraded Hong Kong’s debt rating based on the very close economic relationship between Hong Kong and the mainland is shallow,” Chan wrote in a blog on the official Web site of the financial secretary.

Enhancing cooperation with China cannot be considered negative, as China is the main growth engine for the global economy, he added.

Moody’s on Wednesday cut its rating on China’s debt for the first time since 1989, a challenge to the view that the country’s leaders can rein in leverage while maintaining the pace of economic growth.

Hours later, the company cut the rating on Hong Kong’s local and foreign-currency issuances from “Aa1” to “Aa2,” and changed the outlook from “negative” to “stable.”

It was the territory’s first cut in ranking by Moody’s since the Asian financial crisis in 1998.

“Credit trends in China will continue to have a significant impact on Hong Kong’s credit profile due to close and tightening economic, financial and political linkages with the mainland,” Moody’s said in its statement.

Closer financial ties “risk introducing more direct contagion channels between China’s and Hong Kong’s financial markets,” it said.

Chan, who was appointed financial secretary in January, said Moody’s concern for China’s economy lacked objective evidence because growth and exports this year have improved, while steel and coal oversupply have eased.

In response to the company’s “contagion channels” worry, Chan said Hong Kong’s financial system is stable and it has policies in place to improve risk management for China-related loans.

The rating firm’s outlook cut in March last year has proven to be “exaggerated” based on economic growth since then, Chan also wrote.

Moody’s cut Hong Kong’s outlook from “stable” to “negative” last year, because it said the territory’s credit profile tracked China’s.

Days earlier, it lowered China’s credit-rating outlook, highlighting the country’s surging debt burden and questioning the government’s ability to enact reforms.

China’s currency and stocks rallied, despite the downgrade.

The onshore yuan strengthened 0.5 percent, the biggest weekly gain since July last year.

Shanghai’s benchmark gauge climbed 0.6 percent last week, the most since the week ended April 7.

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