Bangkok--19 Aug--Standard & Poor's
--Hong Kong's accumulated fiscal and external reserves, as well as its above-average growth prospects, underpin Standard & Poor's rating.
--We affirmed our credit ratings on Hong Kong.
--The stable outlook on the long-term credit ratings reflects our expectation of sustained external surpluses and fiscal strength.
Standard & Poor's Ratings Services today affirmed its 'AA+' long-term and 'A-1+' short-term credit ratings on Hong Kong (Special Administrative Region). The outlook remains stable, and the transfer and convertibility (T&C) assessment on Hong Kong remains 'AAA'.
The rating on Hong Kong reflects the SAR's position as a large net external creditor, the government's accumulated fiscal reserves, and above-average economic growth potential compared with similarly rated peers'.
As a small open economy, Hong Kong's economic performance is subject to cyclical volatility. Standard & Poor's expects the Hong Kong economy to contract by up to 5% this year.
"Should growth stabilize in the mainland and stimulus measures in major western markets take hold, we would expect the economy to return to positive growth in 2010 and revert toward a rate of expansion more consistent with the forecast trend rate for the territory of about 4.5% a year," said Standard & Poor's credit analyst William Hess. Strong growth in mainland China and deepening economic and financial links have boosted Hong Kong's short- and long-term growth prospects.
Although its growth prospects for 2009 have been dented by global economic conditions, Hong Kong has benefited from significant stimulus measures taken by major economies, most notably the U.S. and China. The Hong Kong government has also been able to approach the global downturn from a position of relative strength, as prudent fiscal management and financial sector oversight in recent years has left public finances and the banking sector on stable footing relative to similarly rated peers'.
Standard & Poor's forecasts moderate fiscal deficits for the next few years as a result of stimulus spending and the pro-cyclical nature of the SAR tax regime. However, we believe that the government's conservative approach to public finance, reflected in the accumulated fiscal surpluses of recent years, remains unchanged.
"We expect the government to work toward replenishing reserves spent to help shield the economy from recent external shocks once external conditions stabilize and cyclical surpluses return," Mr. Hess said.
Hong Kong's strong net external asset position, as well as the expectation of a moderate current account surplus for 2009, also helps to mitigate weaknesses elsewhere in its credit quality.
Given the size and importance of the banking sector to Hong Kong's economy, the health of large financial institutions in the territory is an important determinant of contingent liabilities that might ultimately necessitate government support. Presently, however, overall levels of leverage in key segments of Hong Kong's economy remain low compared with previous economic cycles and average levels of bank capitalization remain comparatively high.
RELATED RESEARCH
This article is based in part on the following criteria article:
--"Sovereign Credit Ratings: A Primer," published May 29, 2008, on RatingsDirect.
--"Hong Kong (Special Administrative Region)," published July 16, 2009.
--"Hong Kong's Government Creditworthiness Expected To Withstand Short-Term Fiscal Slippage," published Feb. 25, 2009.
--"Research Update: Bank of China (Hong Kong) Ltd. 'A-/A-2' Ratings Affirmed On Satisfactory Credit Profile Despite Minibond Repurchases," published July 24, 2009.
--"Research Update: Standard Chartered Bank Outlook Revised To Negative; 'A+/A-1' Ratings Affirmed," published April 24, 2009.
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Media Contact:
David Wargin, New York (1) 212.438.1579, [email protected]
Analyst Contacts:
William Hess, Hong Kong (852) 2533 3595
KimEng Tan, Singapore (65) 6239-6350
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