S&P Stands by Its Hong Kong Rating Despite Turmoil

(Bloomberg) -- Hong Kong’s unique access to mainland China will keep the city as an Asian financial hub and its credit rating intact despite ongoing protests, according to S&P Global Ratings.

Hong Kong has “much better access” to China’s mainland market compared to any other country and this advantage will not go away in wake of the protests, Kim Eng Tan, senior director of sovereign ratings at the ratings firm, said in an interview. He said he doesn’t expect many of the demands of the protesters to be met by the Hong Kong government given that any change would be subject to approval by China.

“I don’t think this thing is likely to be a structural story in Hong Kong, in that it probably will clear up at some point, just not in the near future or foreseeable future,” Tan said. On credit metrics, “we haven’t seen weakening enough to change our mind about the rating either now, or in the next one to two years.”

The economy will perform worse than expected but Hong Kong will still likely be one of the out-performers among high income countries, according to Tan. Earlier this month, Hong Kong revised down its estimate for economic growth this year, with the government now forecasting the first annual contraction since the global financial crisis a decade ago.

S&P’s view contrasts with that of Moody’s Investors Service Inc., which changed its outlook on Hong Kong’s Aa2 issuer rating to negative from stable in September, citing growing risk that protests will undermine the city’s attractiveness as a trade and financial hub.

Earlier this month, Fitch Ratings Inc. also downgraded Hong Kong as an issuer of long-term, foreign currency debt for the first time since 1995, saying that the territory’s recent political turmoil raises doubts about its governance.

Tan says the protests did impact S&P’s assessment of Hong Kong in some areas including its view on the country’s ability to implement policies and react to future shocks, which has been “significantly reduced.” Fiscal performance will not be as strong as it had been before, he added.

Still, to Tan, the weakened assessment doesn’t call for change to Hong Kong’s AA+ rating and outlook.

“Fundamentally, the reason why Hong Kong remains as an important financial center as it does today is due to very strong structural reasons,” Tan said. “People may be preparing contingency plans, but I don’t think anyone has expressed intention to move big scale out of Hong Kong at this point.”

--With assistance from Fion Li.

To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@bloomberg.net;Finbarr Flynn in Tokyo at fflynn3@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, James Mayger

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