China stocks rise despite Moody’s rating cut while Hong Kong stocks trade near 22-month high
Shanghai stocks rise as tech and defence shares advance
Hong Kong and mainland stocks rose on Wednesday even after Moody’s Investors Service surprised markets by cutting China’s credit rating on what it said was a worsening debt outlook.
The Shanghai Composite Index gained 0.1 per cent, or 2.13 points, to 3,064.08 as advances from the technology sector outweighed pressure from insurers following a recent rally.
Moody’s Investors Service downgraded China’s long-term local currency and foreign currency issuer ratings by one notch to A1 from Aa3. The ratings agency also changed the outlook to stable from negative.
“The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” the ratings agency said in a statement.
Although China’s progress on reforms could transform its economy and financial system over time, it is unlikely to prevent “a further material rise” in economy-wide debt, and the consequent increase in the government’s contingent liabilities, the ratings agency said.
Responses from the onshore currency and bond markets were fairly muted showing that onshore participants pay scant attention to Moody’s or other international rating agencies, AXA Investment Managers said in a research note.
“The combination of financial deleveraging and long-term hopes on structural reforms is supportive to our cautiously constructive view on China, and is perhaps the key reason why Moody’s has placed China on outlook stable after [the] rating cut,” AXA Investment Managers analysts including Jim Veneau said.