Rating the raters

One of the casualties of Asia's economic woes has been the credibility of international credit rating agencies. From their desks in New York and London, these supposed early-warning systems not only failed to predict the current crisis but were among the last to appreciate its consequences.

Moody's and Standard & Poor's continued to rank Thai government bonds as grade A until last October, three months after the baht's collapse. Both agencies only downgraded their ratings for Yamaichi Securities days before the Japanese investment house's bankruptcy last November. Fitch IBCA, Europe's largest rating agency, has now admitted that it and its rivals made serious mistakes, partly because they were too far away to predict how Asian leaders would react to the crisis.

Rather than show similar contrition, Moody's seems intent on trying to erase memories of its earlier over-optimism by veering towards extreme pessimism. Its decision to consider downgrading the short-term ratings for the SAR Government, its two railway corporations and three leading local banks bears little relation to the credit-worthiness of these institutions.

The Mass Transit Railway Corporation now has a lower gearing ratio than at any time in two decades. The inclusion of Hongkong Bank shows a failure to understand the situation in the SAR, where it is smaller banks rather than such giants which might be at risk from the collapse in property prices.

Unsurprisingly, the market may be becoming less influenced by ratings. Far from falling in response to the latest announcement, the Hang Seng Index has risen for two days in a row. Brokers are understandably confused by pessimism when rival agencies are leaving their Hong Kong ratings unchanged.

Rating agencies should provide a reliable guide to the riskiness of alternative investments. Recent events raise questions about how well at least some of them are playing this role.

-- South China Morning Post, Hong Kong