Fitch Ratings on Monday affirmed Hong Kong's long-term debt and issuer ratings at "AA+" and reiterated its outlook to "stable". Asia News Photo

Fitch reaffirms faith in HK as mainland, SAR stocks put up a strong showing

In an apparent rebuff for US rating agency Moody's gloomy forecast of Hong Kong's economic prospects, stock markets in the SAR and on the mainland began the week on Monday on a solid footing, while Moody's US peer Fitch Ratings reaffirmed its faith in the city's financial stability and resilience.

Hong Kong stocks surged, fueled by sharp gains on the mainland bourses, with the benchmark Hang Seng Index advancing 1.17 percent, or 235 points, to close at 20,435.34.

Moody's views on Hong Kong failed to find favor with Fitch - one of the "Big Three" US credit rating agencies - which on Monday affirmed Hong Kong's long-term debt and issuer ratings at "AA+" and reiterated its outlook to "stable".

Andrew Colquhoun, head of Asia-Pacific region at Fitch Ratings, believes that Hong Kong's "exceptionally strong sovereign and external balance sheets, and a resilient macroeconomic performance founded on the economy's supply-side flexibility" really stand as its shock absorbers.

"Notably, Hong Kong's financial stability has proven resilient to the recent deterioration in market sentiment toward (the Chinese mainland)," he said.

Fitch's assessment was in stark contrast to that of Moody's, which last week downgraded the SAR's outlook from "stable" to "negative", citing the city's "tightening political, economic and financial linkages" with the mainland, while maintaining Hong Kong's long-term debt and issuer ratings at "Aa1".

Financial Secretary John Tsang Chun-wah called Moody's views "completely mistaken". "I find it quite hard to understand and agree with Moody's comments that Hong Kong's risks come from its close links with the Chinese mainland," he said on Sunday.

It's the second time Tsang has rejected Moody's views, having said: "I believe what Hong Kong (SAR) faces today is by no means a 'Chinese risk'. Instead, it is a 'Chinese opportunity'."

Despite casting its confidence in Hong Kong's prospects, Fitch agreed that the risks associated with the mainland's economy - from high and rising leverage to slow progress on rebalancing and reform - remain the biggest sensitivity in rating Hong Kong's outlook.

"The city's nature as a small, open economy with deep trade and financial linkages with (the mainland) and the rest of the global economy means it's always easy to find risks to the outlook," Colquhoun said.

This time, having seen Moody's revise its debt rating outlook for the mainland lower, E Zhihuan, Hong Kong-based deputy general manager at Bank of China (Hong Kong), believes Moody's downgrading in Hong Kong somewhat came as no surprise and is something of a ripple effect. The US ratings agency, he pointed out, failed to take into account the enormous opportunities that Hong Kong could enjoy from the mainland's slowing but high-quality economic growth.

With the city's fiscal reserves reaching up to HK$860 billion, equivalent to 24 months of government expenditure, and foreign exchange reserves ranking ninth across the globe with $360 billion, E said Hong Kong has what it takes to weather the economic storm.

sophia@chinadailyhk.com

(HK Edition 03/15/2016 page9)