Chinese equity update
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Shares of Chinese and Hong Kong property groups have fallen to their lowest level in half a decade due to a growing liquidity crisis at developer Evergrand.
Evergrand, the world’s most indebted asset developer, faces more than 300 billion in obligations to creditors and other businesses, and has a deadline to pay interest on its offshore bonds on Thursday.
The company’s Hong Kong-listed shares fell as much as 18.9 percent on Monday. This fall, highlighting concerns about the broader health of China’s real estate sector and initiating massive sales, Hang Seng sent the property index, which tracks a dozen listed developers, to about 7 percent, the lowest level since 2016.
Hong Kong’s broader Hang Seng index fell 3.7 percent, pushing the benchmark down about 12 percent for the year.
Evergrande, whose share price warned of the risk of default last month, said senior executives would suffer “severe penalties” after the initial release on investment products after it told retail investors it could not pay on time.
Trading in Hong Kong indicates that deeper fears in the property sector are pulling towards other developers and financial institutions. The real estate industry, which accounts for more than a quarter of China’s economic activity, is under pressure to reduce debt.
“Evergrand is just one part of the iceberg,” said Louis Tess, managing director of Hong Kong-based brokerage Wealthy Securities. Chinese developers were under considerable repayment pressure on dollar-denominated bonds, he said, while markets were worried that Beijing would pressurize listed real estate groups to reduce housing costs in mainland China and Hong Kong.
“It also affects banks – what will happen to their mortgages if your assets are undervalued?” Tse said. “It has a chain effect.”
Shares of Ping An, China’s largest insurer, fell as much as 8.4 percent on Monday, after closing 5 percent on Friday, forcing it to declare it had no exposure to evergreen debt or equity. The country’s real estate stocks have Rmb63.1bn (9.8bn) across Ping Ann’s Rmb3.8tn insurance fund.
The insurer hit .. 3.2 billion in the first half of the year after China defaulted on Fortune Land Development, a developer who specializes in industrial parks in northern Hebei province.
Other Chinese developers, including Fantasia Group, which was downgraded by Fitch, ratings agency and Guangzhou R&F last week, have also been under pressure in recent weeks. On Friday, Reuters reported that Beijing had asked a Hong Kong property businessman to do more to address the city’s long-standing housing shortage at a closed-door meeting.
Signs of a recession across China’s property sector have also hit iron ore prices, which have reached record highs this year but the market has shrunk after digesting the effects of a government ban on steel production last week.
On Monday, iron ore futures in Singapore fell below 11.5 percent to 100 100 a tonne for the first time in more than a year. Iron ore prices fell 20 percent last week, their worst weekly performance since the 2008 financial crisis.
The mainland China exchange was closed for a public holiday, but the FTSE China A50 index futures traded in Singapore fell 4.3 percent.
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