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Mounting worries about China’s real estate sector, coupled with new grim trade data for the world’s second biggest economy, played no small role in pushing the stock market into the red Tuesday.
The real estate sector is bloated and deeply in debt, problems that first shook markets two years ago.
Then, the risk of default facing titan developer China Evergrande sent investors into a panic. And today, a single developer stands near the center of the roiling market.
Country Garden
(ticker: 2007.H.K.), now China’s largest developer, defaulted on interest payments on debt with a face value of $1 billion, The Wall Street Journal reported. Country Garden’s corporate bond prices tanked and its stock lost 14.4% in Hong Kong trading, dragging the Hang Seng Property Index down 2.5%.
China’s real estate sector took on massive debt over the past couple of decades to fuel fast expansion. An economic slowdown, triggered by the pandemic and fueled by the government’s zero-Covid policy, catalyzed the industry’s financial problems. Country Garden is the latest example.
Despite expert predictions of an economic rebound after China loosened its Covid policy last year, growth has been abysmal. The latest batch of trade data showed domestic consumption rapidly slowing and exports plunging. Consequently, the manufacturing sector is under pressure.
“Amplifying these concerns was a major Chinese property developer—Country Garden,” said Marios Hadjikyriacos, an analyst at broker XM. “The home builder cited ‘liquidity stress’ and blamed a worsening backdrop for sales, reviving fears about a potential default.”
The
Evergrande
shock, in 2021, was an isolated crisis in one sector. But China faces more pressures right now, both internal and external to its financial system, and investors are far less confident in the government’s plans to revitalize the economy.
“Chinese authorities have unveiled a plethora of stimulus measures lately to counter the economic slowdown, but investors have been underwhelmed by the scope and size of these policies, as they seem to lack the firepower necessary to truly kick-start growth,” said Hadjikyriacos. “Behind this reluctance lie concerns about elevated debt levels, particularly in the private sector.”
Rising problems in real estate are just one more thing to watch out for in Chinese markets, which are also staring down key inflation data and earnings from corporate giant
Alibaba
(BABA) in the coming days.
Write to Jack Denton at [email protected]
Read the full article here
