For Hong Kong’s pension fund managers fretting over the risk of forced divestments of US Treasuries, Japan’s Rating and Investment Information Inc has some words of reassurance.
The rating company, called R&I for short, re-affirmed that it will stick with its triple-A credit rating for the US, even though the three major global agencies have downgraded the debt, and as concerns mount that President Donald Trump’s fiscal package inflates the government deficit.
While mostly serving domestic investors, R&I is an approved agency for the Hong Kong Special Administrative Region’s Mandatory Provident Fund system, and as long as it maintains the top rating for the US, MPF funds are allowed to invest over 10 percent of assets in Treasuries.
Kazuki Hara, 54, the head of the Sovereigns and International Issuers Department, said he was surprised when he learned that the HKSAR’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.”
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R&I’s rating has taken on increased significance recently, after Moody’s Investors Service cut its US rating in May, citing an increase in government debt. Fitch Ratings downgraded the US 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.
The bulk of global investors don’t require the top-tier rating to invest freely in Treasuries, which helps minimize the risk of forced sales.
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About $2 billion would need to be divested to bring MPF assets to below the 10 percent limit if there were a downgrade, according to Adeline Tan, head of investments for Asia at consultancy Mercer Inc. 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 US debt risk will hinge on fiscal credibility and trust in the dollar, Hara said. R&I considers qualitative factors like soft power, not just fiscal data, he said.
