China: Moody's cut its outlook to negative from stable - BBH

Research Team at BBH, notes that the markets have withstood some downward pressure on the Chinese yuan. 

Key Quotes

“Late yesterday, Moody's cut its outlook for China's credit rating to negative from stable, and this did not cause much of a ripple in the capital markets. In fact, the Shanghai and Shenzhen Composites rallied a more than 4% today, fully participating in the global advance. The MSCI Asia-Pacific Index advanced 3.4% today to reach its best level since January 13. 

Moody's cited rising government debt, falling foreign currency reserves, and uncertainty about the reform agenda. The rating agency expressed concern about the weakening of China's fiscal strength and saw a growing risk that some of the government's contingent liabilities materialize, such as aid to local governments, policy banks and/or state-owned enterprises. At the same time, Moody's affirmed It Aa2 sovereign rating. Our own sovereign ratings model shows China at AA-/Aa3/AA-, and so we disagree with Moody’s move on the outlook.”