Bangkok--1 Dec--Moody's Investors Service
Moody's Investors Service says that Hong Kong's Aa2 government bond rating and stable outlook reflect the Special Administrative Region's very high economic resiliency, very high government financial strength, and some susceptibility to event risk.
"Economic resiliency—despite the current downturn—is demonstrated by the very strong economy, with very high per capita income and competitiveness in a number of areas, including financial services and international trade," says Steven Hess, a Moody's VP/Senior Credit Officer.
"In addition, Hong Kong's institutions are very strong in the areas of governance, rule of law, and transparency," says Hess who was speaking on the release of Moody's latest annual report -- which he authored -- on Hong Kong.
"Nevertheless, as a very open economy, Hong Kong is being affected by the global credit crisis and recession. International trade and financial services are the most severely impacted, but the negative effects have spilled over to the domestic economy," says Hess. Moody's expects the recession in Hong Kong to last through the first half of 2009.
"However, given its very high economic strength, Hong Kong has considerable buffers against and resources to deal with external shocks, such as the current turmoil in the credit markets," says Hess.
"The government's balance sheet is one of the strongest of Moody's rated governments, with extremely small debt of around 1% of GDP and large fiscal reserves, thereby making debt quite affordable."
"In addition, the Hong Kong banking system is overall sound, as indicated by Moody's average Bank Financial Strength Rating of B, and it is also one of the strongest banking systems globally," says Hess. "A government guarantee of bank deposits and the creation of a facility to inject capital into banks that might require it were put in place in October 2008 so that the banks were not at a disadvantage in comparison to those in countries whose governments took such measures and not because the Hong Kong banks were weak."
"While any major political or economic event in China could affect the SAR, either directly or through investor confidence and capital flows, Hong Kong has -- as indicated - the economic strength to deal with most external shocks, and so the risk of a shock affecting its rating is considered low," says Hess.
The report is entitled "Hong Kong: Credit Analysis". Copies can be found at www.moodys.com