Moody's cuts outlook on Hong Kong's rating to negative from stable

Moody's downgraded its outlook on Hong Kong's long-term debt and issuer ratings to "negative" from "stable" on Saturday, following its outlook change on China's rating earlier this month.

Trends in Hong Kong's credit profile will continue to track those in China, due to its tightening political, economic and financial linkages with the mainland, Moody's said.

Increasing political linkages are likely to weigh on Hong Kong's institutional strength, while the risks to China's economic and financial stability may also undermine Hong Kong's own economic and financial outlook, it added.

Moody's affirmed Hong Kong's Aa1 senior unsecured rating.

The ratings agency downgraded its outlook on Chinese government debt to "negative" on March 2, citing uncertainty over authorities' capacity to implement economic reforms, rising government debt and falling reserves.

In response to Moody's move, Hong Kong's Financial Secretary John Tsang said the city's sound economic fundamentals, robust financial regulatory regime, resilient banking sector and strong fiscal position will continue to enable the economy to embrace the challenges ahead.

"Those strengths, together with the Linked Exchange Rate system, will provide Hong Kong with strong buffers to deal with near-term challenges, while laying the foundation for steady growth and healthy job creation in the medium-term," Tsang said.

The mainland economy still contributed 43 per cent of world trade growth and 35 per cent of global economic growth in 2014, according to statistics from the International Monetary Fund.

Hong Kong is in a good position to benefit from structural rebalancing in China's economy from investment to consumption, as the increase in demand in services will create new business opportunities for a service-oriented economy, Tsang said.