Stocks on the Hong Kong exchange fell most among major Asian markets after Moody’s rating agency cut the financial hub’s rating from Aa2 to Aa3. The city’s government says it “strongly” disagrees with the decision.

The Hang Seng Index lost 2.7 percent as trading closed on Tuesday. Meanwhile, other regional markets slid, with mainland China’s Shanghai Composite and Shenzhen component down more than one percent and Japan’s Nikkei falling 0.9 percent.

FILE PHOTO: Hong Kong skyline © Reuters / Navesh Chitrakar

The plunge came less than 24 hours after Moody’s Investors Service said the reason for Hong Kong’s downgrade was the ineffective response by the local authorities to the protests that have been ongoing in the city for months and have resulted in chaos and violence. However, the agency also changed its credit outlook for Hong Kong to stable from negative.

“The downgrade principally reflects Moody’s view that Hong Kong’s Institutions and Governance Strength is lower than previously estimated,” the US-based rating agency said in a statement.

Unhappy with the decision, the Hong Kong government said that it “strongly” disagrees with the assessment, arguing there are no sufficient grounds for Moody’s to question its ability to handle the situation.

“Our fiscal performance and external positions have long been amongst those of the top-rated economies and serve as a strong buffer for Hong Kong to withstand shock,” a government spokesman said, as cited by Xinhua.

Last year, China’s self-governing territory recognized that months of chaos plunged it into recession after two successive quarters of contraction. The local government expects the situation to worsen in the fourth quarter, with Financial Secretary Paul Chan Mo-po warning that “negative growth is unavoidable.”

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