S&P has maintained its AAA/A-1 credit rating for Hong Kong, but warned that it could face a downgrade in the next year if economic weakness in the mainland continues.
The ratings agency said Hong Kong’s more open economy and predictable and effective policy framework contributes to its higher rating compared to China, and it expects the special administrative region to grow faster than the average of high-income economies over the next three years, Yahoo Finance reported.
However, S&P kept a negative outlook on its long-term rating thanks to Hong Kong’s exposure to the mainland.
The ratings agency said: “In the absence of a further strengthening of the independence of the SAR’s already resilient and effective institutions, we would likely lower our rating on Hong Kong by one notch if we lowered our rating on China. On our current expectations of the trends in economic and financial risks in China, we could lower the rating on China this year or next.”
It added that a worsening of “political polarization” in the territory could lead to an independent downgrade without a worsening in China, but said this scenario “is not our base case.”
Meanwhile, the Shenzhen-Hong Kong Stock Connect may benefit the Hong Kong stock market more than Shenzhen’s due to valuation concerns, the foreign exchange factor and value-hunting.
China’s State Council on Tuesday had okayed the second mainland stock exchange link with Hong Kong, saying the preparation work has been completed and approved.
Hong Kong Exchanges and Clearing Limited expects the new link will be implemented by the year-end.
