Not to Overreact to U.S. Downgrade: HSBC Economist

HONG KONG, Aug. 11 (Xinhua) -- An economist with HSBC Holdings urged not to overreact to the historic downgrade of credit rating of U.S. government debt.

"We need a correct view on the connection between the downgrade and the prospective of the global economy. The two has no direct relation," Qu Hongbin, the Hong Kong based senior economist told Xinhua in a recent interview.

On Friday, Standard & Poor lowered for the first time the long- term sovereign credit rating for the U.S. by one notch to AA+ from AAA.

"We'd better pay more attention to the real economy of the U.S. especially its economic data, rather than being overreacted to the downgrade itself," Qu said, stating the rating agency's move was not completely clueless.

Just the other day, the U.S. government narrowly escaped an unprecedented debt default.

It is argued that the U.S. default risk will remain for a long time because the model of its debt economy has not been changed fundamentally.

S&P also said it cut the long-term U.S. credit rating on concerns about growing budget deficits, adding the freshly passed debt reduction plan by U.S. Congress wasn't enough to stabilize the country's debt situation.

Concerning Hong Kong, Qu said he didn't think the downgrade had a major negative influence on the real economy of the city which depend much on foreign demands.

"Although Hong Kong economy is export-oriented, the downgrade itself has no immediate effect on the world economic outlook, especially given that Hong Kong was growing more and more relied on the Chinese mainland, which will support Hong Kong."

However, Qu added that the U.S. downgrade would shake the local stock market in the short term, which in turn may result in a chain reaction in the property market.

Since the downgrade announced, Hong Kong stocks slumped for three consecutive trading days, with the benchmark Hang Seng index dumping over 2,500 points.

According to Hong Kong's Centaline property agency, which is the largest of its kind locally, turmoil in the global stock markets as well as the downside trend in the Hong Kong market may prolong the adjustment period of the local property market.

On the possibility of another round of quantitative easing (QE3) , Qu saw the timing depended on the future performance of the U.S. economy whether it showed weakness or not, but not simply triggered by the downgrade.