Hong Kong companies ‘resilient’, but protests present new risks, challenges, S&P Global Ratings warns

Hong Kong’s rated companies have strong financial foundations, but the ongoing protests present risks and unprecedented challenges for firms operating in the city, according to S&P Global Ratings.

Of the companies rated by S&P, most firms are “fairly resilient” to current volatility associated with the protests, with moderate to minimal exposure to highly affected sectors, such as hotels, high-end retail and tourist retail, the credit rating agency said in a report on Wednesday.

“Operational costs and risks will likely stay elevated in the face of protests, with companies potentially absorbing the costs of damaged property, dents to brand reputation, or heightened regulation. Companies are finding themselves in unfamiliar territories of increasing complex sensitivities that could lead to unpredictable event risks,” S&P said.

But infrastructure and transport firms such as MTR Corporation face more immediate risks because they are more directly exposed to the increasingly violent demonstrations, the report warned.

The protests and unrest began in June in relation to a controversial extradition bill that would have made it easier to send criminal suspects to mainland China for trial, but have evolved into a broader series of issues, including income inequality, affordable housing and the growing influence of the mainland on Hong Kong.

The latest IHS Markit Hong Kong purchasing managers’ index found that the city’s private sector economy remains in a sharp downturn, as the effects of the US-China trade war and political unrest continued to dampen demand in September. Average PMI stood at 42 in the third quarter, the lowest level since the first quarter of 2009, IHS Markit said. A rating above 50 represents an expansion when compared with the prior period.