The word most uttered over business lunches in Central this week must have been 'Moody's'. The rating agency's 'red flag' report on mainland companies stirred up as much controversy about its own reputation as that of the corporations it rated.
All eyes are now on the Securities and Futures Commission, which managed to put credit rating agencies (CRA) operating in Hong Kong under its regulation last month, after their controversial role in the global financial crisis.
But does the SFC, which licenses credit rating agencies, have any teeth? Despite public outcry over their questionable independence and poor ratings performance, none of the rating agencies has been sanctioned so far.
Nevertheless, our regulator has been vocal. Just hours after Moody's red-flag report knocked down share of dozens of mainland companies, the commission said it was looking into the case. This test case, however, may be more difficult than most people think.
Angry companies that lost value because of the red flags and equity analysts who have been busy defending their recommendations, have plenty of questions for - and criticism of - Moody's.
The first question is motive. Why did Moody's use a red-flag approach when it has not done so elsewhere? Why focus only on China and not other emerging markets? Why issue the report now when the credibility of mainland financial reports has been in the news for months? What new ammunition have short-sellers gained from this report?