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After covering the Daily Dive # 060 Evergrand Real Estate Group last week, our biggest concern was the spread of the contagion to the Chinese economy and the global market. Since then, we have seen a tidal wave of Chinese market sales in the real estate sector, an increase in China bond yields and at the same time a larger S&P 500 correction. China’s junk bond yields continue to rise above their March 2020 high of 1%, while the Hang Seng Index has fallen an additional 35.355% since September.
To date, China’s over-leveraged real estate sector has seen the most contagious expansion effects that occur among other top property developers with equity and bond sales, such as Country Garden Holdings and Sunak China Holdings. The liquidity crisis will spread to the next level of transition in China’s banking sector. On Friday, The People’s Bank of China injected billions of billion yuan ($ 1 billion) in funds, the most since February, to provide short-term liquidity to the banking system.
Shares of Shanghai-based real estate developer Cynic Holdings Group fell nearly 90% to massive volume (about 14 times the average trading volume) before the company closed. In an article published by BloombergPhilip Tse, director and head of property research at Hong Kong and China at Bokom International Holdings Co Ltd, said:
“It’s the same story as everywhere else – investors are worried about liquidity. I think there are probably some margin calls among the major shareholders, ’he said, looking at the stock price pattern of Cinick this afternoon. “