Moody’s downgrades Hong Kong: HK corporates, Taiwan next?

HONG KONG - While markets continue to shrug off Moody’s downgrade of China credit ratings, the agency continues with its clean-up work, slowly but steadily. The latest casualty – Hong Kong – has seen its rating lowered by one notch to Aa2 from Aa1, following the downgrade of 26 State-owned enterprises.

In an analysis of the downgrades, global asset manager Natixis says Moody’s key reason for the action on Hong Kong is simply Hong Kong’s ties with the Mainland.

“On that basis, Moody’s rationale for the downgrade (i.e., dependence on the Mainland) is likely to be applied soon to some Hong Kong’s corporates,” says Natixis. “In many occasions, such a link is not only indirect (as for the Hong Kong Government) but direct, through investments in the Mainland.

“When push comes to shove, even the Taiwanese sovereign could be downgraded as its economy is still heavily reliant on the Mainland in terms of exports, investment and even tourism.”

Says Alicia Garcia Herrero, Natixis Chief Economist, Asia Pacific:  “In a nutshell, the cycle of Greater China downgrades may have only just begun, so please - tighten your seatbelts!”  www.natixis.com (ATI).