Moody's downgrades China credit rating on fears of slowdown
Ratings agency Moody's has downgraded China's credit rating for the first time in 30 years as fears grow that the Asian superpower's economy will experience a major slowdown.
Moody's said that China's financial strength could be diminished in years to come as rising debt continues to drag on its prospects.
China was downgraded to A1 from Aa3, the first downgrade it has been hit with since 1989.
"The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," the ratings agency said in a statement.
The Chinese finance ministry dismissed the credit downgrade in a statement, saying that Moody’s was overestimating threats to its economic growth.
"Moody's views that China’s non-financial debt will rise rapidly and the government would continue to maintain growth via stimulus measures are exaggerating difficulties facing the Chinese economy," the statement read.
NO SURPRISE
While the downgrade itself did not come as a surprise for many investors, the timing perhaps came as somewhat of a surprise for most.
"While there were no real revelations in the Moody’s statement the timing appears to have caught markets by surprise a little. Equity markets in China initially fell sharply on the news and while having pared back some of the losses, are still underperforming this morning," said Deutsche Bank's Jim Reid.
According to forecasts from Moody's, China's growth is set to slow by 5% in years to come.
Mining stocks in the FTSE 100 were among those affected by the news overnight of a downgrade, but staged a recovery towards the mid-morning.