By Fitch Wire
Fitch Ratings-Hong Kong-29 October 2020: Robust capital raising trends in Hong Kong so far this year and the imminent IPO of China’s Ant Group, an affiliate of Alibaba Group (A+/Stable), signal the territory’s continued standing as a major financial center, says Fitch Ratings. Hong Kong’s attractiveness to Chinese firms for raising international capital, as well as its sizeable external and fiscal buffers, will help to mitigate the credit impact of a recent erosion in perceptions of its governance standards and the economic shock from the coronavirus pandemic.
Total fundraising in Hong Kong this year continues to keep pace with trends of recent years, reaching around USD350 billion during the first nine months of 2020. The planned dual-listing of Ant Group in Hong Kong and Shanghai early next month, which could become the world’s largest-ever IPO, will bolster this trend. Listing documents suggest around USD17 billion in funds may be raised in Hong Kong alone.
The planned listing underscores the territory's role as the flagship offshore financing center for Chinese firms, even as deepening geopolitical tensions between China and other major economies complicate Hong Kong’s position as a global financial and commercial hub. Hong Kong’s unique role as a channel for international financial flows in and out of China is further solidified by the continuation of widespread capital-account restrictions on the mainland.
Despite the continued resilience of the financial sector, Hong Kong’s economy faces numerous challenges, which we highlighted in April alongside our downgrade of the territory’s rating to ‘AA-’, with a Stable Outlook, from ‘AA’.
The economy is experiencing a second major shock as a result of the pandemic, which follows disruptions associated with anti-government demonstrations in 2019 and early 2020. The authorities have been successful in containing the number of local COVID-19 cases and reducing the need for large-scale lockdowns. Nevertheless, the impact of the health crisis has still been severe. We expect real GDP to contract by 7.5% in 2020 and the fiscal reserve to decline by the equivalent of about 10pp of GDP before economic growth rebounds to 4% in 2021.
Damage has also been done to international perceptions of the territory’s business environment and governance standards in the wake of the protests. Hong Kong’s Worldwide Governance Indicator scores for 2019, compiled by the World Bank and published in September, posted the biggest decline among the more than 200 markets tracked. This reflected both the impact of the social unrest as well as the authorities’ response to it. We anticipated a decline in the governance scores at the time of our April downgrade, and believe our current rating already captures trends seen so far in 2019-20.
