Moody's downgrades Hong Kong's rating, citing the government's 'slow' response to protests

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• Moody's cut Hong Kong's credit rating from Aa2 to Aa3, citing the city's lack of "effective response" to nine months of protests against China.
• The move by Moody's follows an earlier downgrade from Fitch ratings in September last year.
• However, the ratings agency changed the outlook from negative to stable.
• Hong Kong has been embroiled in protests since June of last year, hurting the economy.

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Moody's downgraded Hong Kong's credit rating after it cited the absence of an "effective response" from the Hong Kong government to the ongoing protests.

The rating was slashed from Aa2 to Aa3, Moody's said in a statement on Monday.

"The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody's had previously assessed," Moody's said, adding that Hong Kong also lacked "an effective response by Hong Kong's executive and legislative branches of government to the concerns that have contributed to the ongoing protests, and the inertia which has increasingly characterised the legislative and executive branches."

However, the ratings agency changed the outlook from negative to stable, citing "superior fiscal strength and consistent macroeconomic stability" that is expected to continue through the period of heightened uncertainty in the region.

Hong Kong has been embroiled in protests for the past nine months between millions of civilians and the government. The protests, that initially began as a rally against a legal bill that would have allowed for the extradition of Hong Kong residents to China, has morphed into a sweeping movement against the territory's relationship with the mainland.

"The underlying drivers of the protests are certainly deep-seated and intractable," Moody's said in its note on Monday. "Nevertheless, the response by Hong Kong's government to both political demands by parts of the population and broader concerns about living standards in the SAR (Special Administrative Region), housing costs, and equality of economic opportunities, has been notably slow, tentative, and inconclusive."

The move by Moody's follows an earlier downgrade from Fitch ratings in September last year citing political turmoil in the region causing uncertainty about its governance. Hong Kong in October officially entered its first recession since the financial crisis after posting a 3.2% GDP contraction in the third quarter.

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