Hong Kong Sovereign Downgrade: Could Corporates and Banks Be Next?

Moody’s rationale for its decision to downgrade Hong Kong (dependence on the Mainland) is likely to be applied soon to some Hong Kong’s corporates, the more so the more dependent on China, according to Natixis Research.

Natixis Research explains that in many occasions, such link is not only indirect (as for the Hong Kong government) but direct, through investments in the Mainland - with the real estate sector being clearly one of the many examples.

Hong Kong banks themselves also suffer from a direct exposure through cross- border lending, which for some is quite massive.

“This argument could even be made for HSBC and Standard Chartered Bank, whose revenues are heavily concentrated in Greater China,” says Natixis in a report.

“When push comes to shelf, even the Taiwanese sovereign could be downgraded as its economy is still heavily reliant on the Mainland in terms of exports, investment and even tourism.

“This is, however, a longer shot both based on past experience (Moody’s did not lower Taiwan’s outlook to negative after China and Hong Kong’s outlook downgrade back in March 2016) but also on Taiwan’s government strong will to diversify away from China.” 

 

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