Moody's downgrades Hong Kong outlook to 'negative'

Rating agency Moody's cites increasing political risk, closer ties with economically troubled China for decision

Rating agency Moody's downgraded its outlook for Hong Kong today, citing increasing political riskiness and closer economic ties with China, which is facing a growth slowdown.

Moody's changed Hong Kong's outlook from "stable" to "negative" as the semi-autonomous city continues to reel from political unease following mass pro-democracy protests in 2014.

The city saw violent street clashes between police and protesters last month and the fate of five Hong Kong booksellers who went missing and later turned up on the mainland, with four now under criminal investigation, is still in question.

The case has triggered fears of increasing Chinese interference in the city.

"Increasing political linkages are likely to weigh on Hong Kong's institutional strength," Moody's Investors Service said in a statement.

"Political risk has risen in Hong Kong in light of ongoing tensions over the implementation of the 'One Country, Two systems' policy," it said, referring to the policy that grants the city freedoms not seen on the mainland.

It warned that tensions could rise in the lead-up to an election next year for the city's leader, which it said could "impair the effectiveness of government policies".

The vote is the first following a failed political reform package last year that saw pro-democracy lawmakers vote down a proposal that would have opened the ballot for the city's leader to all seven million residents instead of only allowing Beijing-vetted candidates to run.

A Hong Kong government spokesman said Moody's comments were "purely speculative and subjective statements without any ground".

"There has been no evidence of mainland interference in Hong Kong affairs or Hong Kong institutions losing independence over time," he said in a statement.

Moody's report also said risk in China's economy and financial stability could also undermine the city's economic outlook.

"The elevated volatility in Hong Kong's financial markets in recent months has mirrored developments in China's markets, highlighting the strong transmission of changes in risk aversion from China to Hong Kong.