S&P affirms HK ratings, but points to ‘political polarisation’

HONG KONG - Standard & Poor's has affirmed its 'AAA' long-term and 'A-1+' short-term issuer credit ratings on Hong Kong with the outlook stable. It says the ratings reflect the economy's above-average growth prospects for a high-income economy – and points to Hong Kong’s main credit constraints as limited monetary flexibility and risks associated with weaker institutions in lower-rated China.

“We estimate Hong Kong's 2014 GDP per capita at about US$40,500, and its trend growth (2.7%) is well above the median for peers with similar GDP per capita,” S&P says. “Hong Kong benefits from its competitive service sectors, recovering advanced economies, and continued robust growth in mainland China. Its key role in facilitating the international use of the Chinese currency and foreign investment in China, in combination with mainland China's capital account liberalization, has boosted Hong Kong's financial sector.”
However, increasing economic and administrative integration with the mainland has increased Hong Kong's exposure to changes in administrative policies and weaker civil institutions in China, S&P says. “As Hong Kong is a special administrative region of China, movements in the ratings on China may affect the ratings on the SAR. Hong Kong cannot be completely insulated from less-developed mainland institutions while economic integration with China continues.”
S&P suggests it could lower the ratings if Hong Kong's political polarisation “becomes much worse than we expected and significantly compromises policymaking and the business environment”. “That could amplify external risk if volatility in global financial markets increases sharply. A downgrade of China could also lead us to lower our ratings on Hong Kong.” www.standardandpoors.com (ATI).