Fitch slashes Hong Kong’s credit rating as months of protests have inflicted ‘long-lasting damage’ on its financial system

source
Anthony Kwan/Getty Images

Protests throughout Hong Kong are damaging the city’s credit status within the global financial system.

Fitch Ratings said in a statement on its website on Friday that it downgraded Hong Kong’s credit rating to a ‘AA’ from a ‘AA+’ citing a negative outlook as continuing protests have brought into question the city’s “one country, two systems” framework.

“Ongoing events have also inflicted long-lasting damage to international perceptions of the quality and effectiveness of Hong Kong’s governance system and rule of law, and have called into question the stability and dynamism of its business environment,” Fitch said in a statement on its website on Friday.

Fitch expects Hong Kong’s economy to contract in the second half of the year, with growth slowing to 0% in 2019, and recovering to 1.2% in 2020. Its possible the downgrade could increase borrowing costs for Hong Kong’s government and businesses, but a ‘AA’ rating is still the third highest credit status on Fitch’s scale.

Markets Insider is looking for a panel of millennial investors. If you’re active in the markets, CLICK HERE to sign up

Protests broke out in the city several months ago over a controversial extradition that has since been withdrawn by Hong Kong’s leader Carrie Lam. Chinese officials have warned the protests could send the city into a recession, and many investors have viewed the situation as a potential catalyst for a global economic slowdown.

“A more challenging economic landscape has emerged as a result of the blow to domestic activity precipitated by continued unrest, as well as the already-existing external headwinds brought on by the US-China trade conflict,” Fitch said.

Hong Kong’s business community has struggled to reassure investors and companies over the last several months that its financial system is still an attractive place to invest capital. Chinese e-commerce giant Alibaba postponed its multibillion-dollar Hong Kong IPO earlier this month due to the political instability in the city.