Evergrande contagion menace hits China and Hong Kong property shares

Chinese language equities updates

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Shares in Chinese language and Hong Kong property teams fell to their lowest ranges in half a decade as an escalating liquidity disaster at developer Evergrande confirmed indicators of spreading past the sector.

Evergrande, the world’s most indebted property developer, faces obligations of greater than $300bn to collectors and different companies and an important curiosity fee deadline on its offshore bonds on Thursday.

The corporate’s Hong Kong-listed shares fell as a lot as 18.9 per cent on Monday. The drop underscored concerns about the broader health of China’s actual property sector and triggered a wider sell-off, sending the Hold Seng Property index, which tracks a dozen listed builders, down virtually 7 per cent, to its lowest stage since 2016.

Hong Kong’s broader Hold Seng index fell 3.7 per cent, taking the benchmark down virtually 12 per cent for the yr.

Evergrande, whose share value has tumbled because it warned of the risk of default final month, mentioned senior executives would undergo “severe punishment” after securing early redemptions on funding merchandise it later advised retail buyers that it couldn’t repay on time.

Buying and selling in Hong Kong indicated that the deepening fears for the property sector have been dragging on different builders and monetary establishments. The true property business, which accounts for greater than 1 / 4 of China’s financial exercise, has come beneath strain to reduce debt.

“Evergrande is simply the tip of the iceberg,” mentioned Louis Tse, managing director at Rich Securities, a Hong Kong-based brokerage. Chinese language builders have been beneath substantial compensation strain on dollar-denominated bonds, he added, whereas markets had turn into nervous that Beijing would push listed actual property teams to chop the prices of housing in mainland China and Hong Kong.

“That impacts the banks as nicely — when you’ve got decrease property costs what occurs to their mortgages?” Tse mentioned. “It has a series impact.”

Shares in Ping An, China’s largest insurer, fell as a lot as 8.4 per cent on Monday, after closing down 5 per cent on Friday because it was compelled to reveal that it held no publicity to Evergrande debt or fairness. Ping An has Rmb63.1bn ($9.8bn) of publicity to the nation’s actual property shares throughout its Rmb3.8tn of insurance coverage funds.

The insurer took a $3.2bn hit within the first half of the yr after the default of China Fortune Land Improvement, a developer that specialises in industrial parks within the northern Hebei province.

Different Chinese language builders together with Fantasia Group, which was downgraded final week by Fitch, the score company and Guangzhou R&F, have additionally been beneath strain over current weeks. On Friday, Reuters reported Beijing had advised Hong Kong’s property tycoons in closed-door conferences to do extra to ease the town’s power housing scarcity.

Indicators of a slowdown throughout China’s property sector have additionally hit iron ore costs, which reached a file this yr however slumped final week after markets digested the influence of presidency curbs on steel production.

On Monday, iron ore futures in Singapore fell as a lot as 11.5 per cent to under $100 a tonne for the primary time in over a yr. Iron ore costs had tumbled 20 per cent final week, their worst weekly performance because the monetary disaster in 2008.

Exchanges in mainland China have been closed for a public vacation, however FTSE China A50 index futures traded in Singapore fell as a lot as 4.3 per cent.