China rating cut hits Shanghai stocks but other Asia markets rise

[HONG KONG] Shanghai and Hong Kong stocks tumbled Wednesday after Moody's cut its rating on China warning about its growing debt mountain, but most other Asian markets edged up following a positive lead from the US and Europe.

The ratings agency said its downgrade on the world's number two economy came because of the likelihood of a "material rise" in debt throughout the economy and as potential growth continues to slow.

Beijing has tried to address a toxic brew of unregulated and risky lending, which is increasingly viewed as a threat to global financial stability.

But analysts are unsure about leaders' willingness to push on with the reforms as huge borrowing has been a key driver of the growth the Communist Party relies on for political legitimacy.

China's economy grew last year at its slowest pace in a quarter of a century and there are expectations it will continue to ease over the coming years.

"It is a psychological blow that China will not take kindly to and absolutely speaks to the rising financial pressures in China," Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen, told Bloomberg News.

While Moody's also upgraded China's outlook to stable from negative, equity traders sold up.

Shanghai, which has already been under pressure since last month on worries about a crackdown on leveraged trading, fell one percent, while Hong Kong lost 0.4 per cent. The yuan fell 0.1 per cent against the dollar.

ELEVATED CONCERNS

But elsewhere, investors tracked a Wall Street gain. Tokyo finished the morning 0.5 per cent higher, while Sydney put on 0.2 per cent, Singapore gained 0.1 per cent and Seoul also added 0.2 per cent.

Wellington and Taipei were each comfortably higher.

US stocks rose for the fourth straight session after Donald Trump's administration unveiled a 2018 budget that includes billions of dollars worth of cuts over 10 years but also a huge rise in military spending.

There was little carry-over from Monday's terror attack in Manchester that killed 22 people including children at a concert, although Stephen Innes, senior trader at Oanda, said in a note "the initial market response is subdued on the surface, but concerns about future attacks remain elevated".

On currency markets the euro continues to press ahead as uncertainty about future US policy - linked to recent crises that have hit Trump - comes up against a string of upbeat eurozone data including Tuesday's economic growth and jobs creation.

Attention turns later in the day to the release of minutes from the Federal Reserve's most recent policy meeting, hoping for a handle on its plans for interest rate hikes following a number of weak indicators lately.

Among the weak points is inflation, which Minneapolis Fed president Neel Kashkari described as going in the wrong direction.

AFP