Analysis-Moody's outlook cut complicates Beijing's 'war' against market bears
SHANGHAI/HONG KONG (Reuters) — Moody's (NYSE:MCO) negative outlook on China has intensified Beijing's battle with market bears, raising pressure on the government for more forceful measures to prop up sinking stocks and stabilise the yuan as investor confidence deteriorates.
In its Tuesday announcement, the ratings agency flagged weakening growth prospects, adding to mounting global concerns that China's economic miracle is over, potentially leaving the world's second-largest economy stuck in a middle-income trap.
While keeping China's sovereign rating at A1, Moody's cut its outlook to negative from stable, citing surging municipal debt and property market woes. Such concerns have prompted other institutions to draw comparisons with Japan's similar macroeconomic symptoms before its «lost decades» of stagnation.
Even though China's rising debt levels and over-reliance on property have long been part of the conversation, the voice of a ratings agency carried enough weight to renew a sell-off in Chinese assets and prompt state bank actions in markets.
«This is a financial war,» said Yuan Yuwei, founder and CIO of Water Wisdom Asset Management.
Moody's move «would trigger foreign reduction in Chinese assets, and would also push up China's funding costs, potentially leading to deterioration in asset quality.»
Authorities have taken a raft of economic support measures and targeted steps to prop up the stock market, including cutting stamp duty, slowing the pace of listings and getting state-backed funds to buy stocks.
In an apparent effort to calm the market, the official Shanghai Securities News reported on Wednesday that China's securities watchdog will promote reforms to attract more long-term capital into the market.
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