Just days before the National People’s Congress votes on China’s 13th five-year plan, credit ratings agency, Moody’s Investor Services has downgraded its outlook for the world’s second largest economy.

Citing fears over the authorities’ ability to implement economic reforms, the agency downgraded its rating to “negative” from “stable”. While the timing of the announcement is generally thought to be entirely coincidental, the downgrade will be less than welcome as policymakers vote on the development blueprint that will govern growth strategy for the next 5 years.

China is still in the midst of a tough transition from an export-led economy to one with a greater bias towards consumption and services. Moody’s raised concerns over the country’s fiscal strength and noted the $762 billion decline in its foreign currency reserves over the last 18 months.

Erik Larsson, chief market strategist at Nihon International was more optimistic. “There’s a great deal of agonizing over China’s economy and we’re not sure it’s warranted,” he said. “We think the consternation would best be reserved for the US economy right now, because all is not well and there are issues that need to be addressed if it is to avoid a recession.”

Market reaction to the Moody’s downgrade was muted with both the main Chinese stock markets surging higher by more than 4% by the close of the day’s trading.

“A Moody’s downgrade isn’t the event it once was considering how wrong-footed they and the other credit ratings agencies were over subprime before the great financial crisis of 2008,” said Larsson

About Nihon International:
Nihon International is a top-tier independent wealth management and investment house that delivers high caliber financial services to both private clients and institutions.

To individuals, families and charitable foundations with in excess of US$250,000 in investable assets, we provide discretionary investment management, capital advisory investment management and full execution-only services.

To pension funds, insurers and mutual funds, we provide invaluable market insight via the most meticulous research and analysis, seamless, cost-effective execution and a comprehensive suite of value added investment banking services that include securities lending on an unlimited number of global exchanges.