Hong Kong suffered a double whammy on Friday when one of the world’s biggest credit agencies downgraded the city’s sovereign rating and its stock trading platform was discovered to have been the target of cyberattacks a day earlier.
Fitch Ratings downgraded the city’s rating a notch from AA+ to AA and the city’s outlook from stable to negative as it raised doubts about its governance under the “one country, two systems” principle amid continuing protests, an assessment stoutly rejected by city leader Carrie Lam Cheng Yuet-ngor.
The downgrade added to the bad news about the stock exchange website, which was forced to suspend its derivatives trading on Thursday afternoon and was found on Friday to have been plagued by denial-of-service attacks and an unrelated software glitch.
The two separate events and Fitch’s downgrade – Hong Kong’s first since 1995 – delivered yet another blow to a city already grappling with the impact of nearly three months of anti-government protests.
Coming in the wake of the airport and MTR network disruptions of recent weeks, the city’s international reputation was taking a hit from these incidents, analysts said. The last time Hong Kong, Asia’s third-largest financial marketplace, incurred a breakdown of its trading platform was in 2011, triggered by a similar cyberattack.
Lam, who was on an official visit in Guangxi, shrugged off Fitch’s downgrade.
“We disagree with Fitch. That is because what happened in the past few months did not undermine ‘one country, two systems’ at all,” she said.
“Until now, and in the future, we have been firmly upholding, and will uphold ‘one country, two systems’ as our top principle in stopping violence and chaos.”
Although the latest rating means the city still enjoys the status of third-highest investment grade, it will have implications on the borrowing costs of companies and the government.
The announcement came just before the end of morning trading, with the Hang Seng benchmark index closing the day up 175 points, or 0.66 per cent, at 26,690.76.
Fitch is the first of the big three credit rating agencies to downgrade the city’s sovereign rating, with rivals S&P Global Ratings and Moody’s Investors Service declining to say whether they would make a similar move. All three are American companies.
The rating firm reported that the demonstrations had inflicted “long-lasting damage” to global perceptions of the quality and effectiveness of Hong Kong’s governance system, and rule of law, and called into question the stability and dynamism of its business environment.
Fitch said these strengths risked further erosion because of the continuing civil unrest, even though in the wider global context, the city’s creditworthiness remained strong.
It said the city faced an even more challenging economic landscape, with the protests dealing a blow to local businesses and an economy already weakened by the trade war between the United States and China.
The city has been rocked for nearly three months by anti-government protests, sparked by opposition to an extradition bill, which would have allowed the transfer of fugitives to jurisdictions the city did not have an agreement with, including mainland China.
Clashes between protesters and police have become increasingly violent as the city reels from the worst political crisis since the handover of its sovereignty to China in 1997.
Lam announced on Wednesday that the bill would be withdrawn, meeting one of the five demands of the protesters.
While the business community welcomed her move, protesters have continued to demonstrate over the past two days and have threatened to block Hong Kong International Airport again on Saturday, to press for their remaining four demands.
Lam said that acceding to one of them — such as to grant amnesty to all those arrested — would undermine the rule of law and “the international perception of our rule of law would be even more negative”.
Financial Secretary Paul Chan Mo-po said he was disappointed with Fitch’s downgrade, arguing that the city’s competitiveness was unaffected by the protests.
Francis Lun Sheung-nim, chief executive of brokerage GEO Securities, said he was not surprised.
“The downgrade will hurt investors’ perception on Hong Kong and will affect major corporate borrowers,” he said.
Traders rushed back when the derivates platform resumed trading on Friday morning, after a software problem forced the market to close down at 2pm on Thursday.
The bourse’s CEO, Charles Li Xiaojia, said HKEX suffered a distributed denial of service attack, or DDoS, as hackers overwhelmed the network with massive incoming traffic on its website that provides stock-price information.
The attack had nothing to do with the derivatives market suspension, which was caused by a software bug by the vendor.
“We will continue to invest more to safeguard and improve” the information and technical infrastructure at the exchange, Li said at a news conference. “We hope the public has confidence in the robustness of our system.”
Cheung Wah-fung, a financial sector lawmaker and the chairman of Christfund Securities, recalled the 2011 cyberattack, saying: “Amid the sensitive timing, any problem with the HKEX’s trading systems or its website will create a lot of speculation and panic.”
Michael Gazeley, managing director of the cybersecurity firm Network Box, said: “The combination of two separate events – the DDoS attack and the software glitch – makes HKEX either the victim of extremely bad luck or the victim of a good hacker.”
As of 6.30pm on Friday, the total number of derivatives contracts traded stood at 986,197, including 171,214 Hang Seng Index futures, returning to normal turnover levels.
More from South China Morning Post:
- Hong Kong Stock Exchange says its website was hacked while it halted derivatives trading to fix unrelated software bug
- As Hong Kong protests reflect anti-mainland China sentiment, Carrie Lam boosts cross-border ties
- In drama-packed day in Hong Kong stock market, big gainers in Wednesday’s ‘olive branch’ surge fall while derivatives trading is suspended over ‘connectivity’