Hong Kong fi­nance chief ques­tions Moody’s over debt down­grade

Panay News - - BUSINESS -

HONG KONG – 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 wrote in a blog on Sun­day.

“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 web­site of the fi­nan­cial sec­re­tary. En­hanc­ing co­op­er­a­tion with the main­land can­not be con­sid­ered neg­a­tive as China is the main growth en­gine for the global econ­omy, he added.

Moody’s cut its rat­ing on China’s debt f or t he first time since 1989 on Wed­nes­day, 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 to Aa2 from Aa1, and changed the out­look to sta­ble from neg­a­tive. 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 t i ght­en­ing eco­nomic, f i nan­cial 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.” Hong Kong’s govern­ment ‘Sound Fun­da­men­tals’ said in a state­ment on its web­site shortly af­ter­ward t hat i t dis­agreed with the de­ci­sion by Moody’s, cit­ing Chan. The rat­ings com­pany over­looked Hong Kong’s “sound eco­nomic f u nda­men­tals, r o b u s t fi­nan­cial reg­u­la­tory regime, re­silient bank­ing sec­tor and strong fis­cal po­si­tion,” the govern­ment said.

Chan, who was ap­pointed Hong Kong’s f i nan­cial s e c r e t a r y i n J a nuary, ex­panded on that ar­gu­ment with his blog post on Sun­day. He 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 t o Moody’s “con­ta­gion

worry, Chan said Hong Kong’s fi­nan­cial sys­tem is very sta­ble and it has poli­cies in place to im­prove risk man­age­ment for main­land-re­lated loans.

The rat­ing firm’s out­look cut i n March 2016 has proven to be “ex­ag­ger­ated” based on eco­nomic growth since then, Chan also wrote. Moody’s cut Hong Kong’s out­look to neg­a­tive from sta­ble last year be­cause it said the city’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 last week’s debt-rat­ing down­grade. The on­shore yuan strength­ened 0.5 per­cent, the big­gest weekly gain since July 2016. Shang­hai’s bench­mark gauge climbed 0.6 per­cent last week, the most since the week ended April 7. ( Bloomberg)

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