Could Hong Kong’s political uncertainty affect its credit rating?

Shortly after the British people voted to leave the EU last month, some credit rating agencies downgraded its rating as a result of the uncertainty that unleashed. And that scenario – in which a normally creditworthy state has weakened status because of political turmoil – has particular significance for Hong Kong.

The city, with its favourable business environment, good infrastructure, rule of law, high-calibre workforce and sophisticated financial services, has long been a top global finance hub.

But that could be under threat, according to ratings agencies, if the upcoming Legislative Council elections this year and the chief executive race next year fuel the political tensions in the city.

Two of the “big three” credit rating agencies – Standard and Poor’s and Moody’s – revised the city’s sovereign rating outlook from stable to negative earlier this year, with the third, Fitch, warning that widening political divides could hurt the city’s economy.

And the impact of the political climate on finance in the UK is further evidence of their predictions that political factors will play a bigger role in moving the city’s future credit ratings.

The agencies rate a country on the strength of its economy, specifically the government’s ability to pay its debts. A rating affects how much it costs the government to borrow money on the international financial markets.