Moody's downgrades Hong Kong's rating for poor protest management

The risk rating agency Moody's downgraded Hong Kong's score as a long-term debt issuer by claiming that the Chinese semi-autonomous city government has failed to deal with the massive protests that began in June 2019 and have led to this financial center to the recession.

In a statement released last night, Moody's said it lowered its main rating on Hong Kong from 'Aa2' to 'Aa3', to place it in the last of the three 'Aa' levels, which apply to the emissions that the agency considers "of high quality and subject to low credit risk. "

The reason for this reduction, the firm explained, is its concern for the Hong Kong institutions, the reduction of the strength of the local administration and that the autonomy of the territory with respect to mainland China faces "more significant limitations" than those It was believed.

Moody's regrets the "absence of tangible plans to address the political, economic and social concerns of the population of Hong Kong" in the last nine months, which would reflect "a weaker institutional capacity" than previously considered by the agency, based in NY.

The report describes the response of the local Executive to demands for greater political freedoms, concerns about the high cost of living or economic opportunities as "remarkably slow, uncertain and not convincing."

However, despite the reduction to 'Aa3', Moody's outlook is stable at this level, as it anticipates that "superior fiscal strength and consistent macroeconomic stability" will continue during this period of high uncertainty in the region.

Following the publication of this report, the Hong Kong government issued a statement showing its "deep disappointment" over Moody's decision, as well as its "strong discrepancy."

A government spokesman acknowledged the "serious social unrest" in recent months, although he defended that the Executive "has firmly defended the principle of 'one country, two systems' (which governs the autonomy of Hong Kong and its fit in China) and has managed the situation according to the law to stop the violence ... and restore the social order as soon as possible ".

"Moody's rating is far from Hong Kong's solid credit fundamentals. Our fiscal performance and external positioning have long been among those in the highest rated economies, and serve as a strong buffer for Hong Kong to withstand shocks. "he said.

Finally, the local government wanted to defend the health of the banking system and also recalled that IPOs and bond issuance continue despite the disturbances.

The Moody's downgrade was the first for the city's rating by the agency since May 2017, although Fitch Ratings downgraded it in September from 'AA +' to 'AA' with a negative outlook.

A government report also showed on Monday that Hong Kong's unemployment rate rose to 3.3% in the last quarter, compared with 2.8% in the months before the protests began in June.