Global rating agency Moody's Investors Service announced Friday that it changed Hong Kong's outlook to "negative" from "stable", and affirmed the government's long-term debt and issuer ratings at 'Aa1'.
"The announcement follows Moody's outlook change on China's Aa3 rating to negative from stable. The revision in Hong Kong's rating outlook reflects Moody's view that trends in Hong Kong's credit profile will continue to track those in China, due to its tightening political, economic and financial linkages with the Mainland," the rating agency explained.
Moody's stated that risks against China's economic and financial stability could undermine Hong Kong's own macroeconomic outlook due to the links between the two.
"Hong Kong's economic and financial linkages with China also give rise to potential negative spillovers from China in case of a rise in financial stress and, ultimately weaker growth, as such developments could adversely affect Hong Kong's economy and financial sector," Moody's said in its statement.
"The importance of China for Hong Kong's trade sector and the dependence of Hong Kong's economy on trade imply that weaker economic growth in China -- as a result of rising financial stress -- would significantly dampen Hong Kong's economic performance, both directly through bilateral trade channels and indirectly through China's impact on global trade," it explained.
The agency stressed that weaker growth in Hong Kong, similar to China, could wear out the government's fiscal buffers and lead to an increase in public spending.