Japanese agency's affirmation of top U.S. credit rating helps Hong Kong funds

Japan Times

17 hours ago

For Hong Kong's pension fund managers fretting over the risk of forced divestments of U.S. Treasurys, Japan's Rating and Investment Information has some words of reassurance.
The rating company, called R&I for short, reaffirmed that it will stick with its triple-A credit rating for the Treasurys, even though the three major global rating agencies have downgraded the debt, and as concerns mount that U.S. President Donald Trump's fiscal package inflates government deficit.
While mostly serving domestic investors, R&I is an approved agency for Hong Kong's Mandatory Provident Fund system, and as long as it maintains the top rating for the U.S., MPF funds are allowed to invest over 10% of assets in Treasurys.
"The U.S. stands alone in terms of economic power,' Kazuki Hara, 54, the head of R&I's sovereigns and international issuers department, said in an interview. "Confidence in the dollar as a key reserve currency has not been shaken.'
R&I's rating has taken on increased significance recently, after Moody's Investors Service cut its U.S. rating in May, citing an increase in government debt. Fitch Ratings downgraded the U.S. in 2023, and S&P Global Ratings did so back in 2011.
Trump last week signed a fiscal package and tax cuts that may add more than $3 trillion to the deficit. The International Monetary Fund has warned that this will likely complicate the task of reducing the debt burden in the coming years.
Hara said he was surprised when he learned that Hong Kong's pension system uses R&I's ratings.
"We only found out when the media reached out,' he said in the interview on July 1. "Frankly, it caught me off guard.'
The bulk of global investors don't require the top-tier rating to invest freely in Treasurys, which helps minimize the risk of forced sales.
About $2 billion would need to be divested to bring MPF assets to below the 10% limit if there were a downgrade, according to Adeline Tan, head of investments for Asia at consultancy Mercer. The MPF has more than HK$1.3 trillion ($170 billion) in assets.
R&I provides sovereign ratings for 44 countries and reviews them each once a year in principle, with ad hoc evaluations if there are major developments. The company has about 180 employees.
Future assessments of U.S. debt risk will hinge on fiscal credibility and trust in the dollar, Hara said. R&I considers qualitative factors such as soft power, not just fiscal data, he said.