Hong Kong 'AA+/A-1+' ratings affirmed by S&P; Outlook stable

HONG KONG - Standard and Poor's today affirmed its 'AA+/A-1+' issuer credit ratings on Hong Kong on the expectation that the Special Administrative Region's strong credit metrics will allow the Government's credit standing to withstand fallout from the current situation.

S&P said that, in its view, sustained social unrest in Hong Kong had led to an erosion in civil society cohesiveness, and damaged policy effectiveness.

"We believe that Hong Kong's institutions face significant challenges in addressing acute societal demands," it said.

"The rise in domestic conflict has also exacerbated an economic slowdown already under way in Hong Kong.

"To mitigate the impact of much slower economic growth, we expect the authorities to increase fiscal spending on short-term stimulus measures and to implement policies to address longstanding supply shortages, in response to social demands."

S&P Global Ratings affirmed its long-term issuer credit rating on Hong Kong at 'AA+' and the 'A-1+' short-term issuer credit rating on Hong Kong. The transfer and convertibility assessment remains at 'AAA'.

It said the stable outlook on Hong Kong's long-term issuer rating reflected S&P's expectation that Hong Kong's strong economic and financial metrics would allow the Government's credit standing to withstand fallout from ongoing social unrest in the next two to three years.

"During this period, we expect muted economic growth, as business investment is weighed down by U.S.-China trade tensions, while tourism, retail sales, and consumption are crimped by social unrest.

"The stable outlook also reflects our expectation that the institutional arrangements between Hong Kong and the China central government continue under the "one country, two systems" framework, as outlined in the Basic Law."

S&P said the ratings on Hong Kong could weaken if continuing social tensions resulted in abrupt changes in relations between the central government of China and the SAR government.

This could reduce policy predictability in Hong Kong and undermine confidence in the autonomy of the SAR Government.

"We could also lower the ratings on Hong Kong if a prolonged economic slowdown results in much weaker external and fiscal profiles than what we are currently projecting," S&P said.

"The ratings on Hong Kong could strengthen if the policy environment improves materially as social stability is restored and the central government's credit standing improves."

www.standardandpoors.com (ATI).