News

Shares in Chinese and Hong Kong property groups fell to their lowest levels in half a decade as an escalating liquidity crisis at developer Evergrande showed signs of spreading beyond the sector.

Evergrande, the world’s most indebted property developer, faces obligations of more than $300bn to creditors and other businesses and a crucial interest payment deadline on its offshore bonds on Thursday.

The company’s Hong Kong-listed shares fell as much as 18.9 per cent on Monday. The drop underscored concerns about the broader health of China’s real estate sector and triggered a wider sell-off, sending the Hang Seng Property index, which tracks a dozen listed developers, down almost 7 per cent, to its lowest level since 2016.

Hong Kong’s broader Hang Seng index fell 3.7 per cent, taking the benchmark down almost 12 per cent for the year.

Evergrande, whose share price has tumbled since it warned of the risk of default last month, said senior executives would suffer “severe punishment” after securing early redemptions on investment products it later told retail investors that it could not repay on time.

Trading in Hong Kong indicated that the deepening fears for the property sector were dragging on other developers and financial institutions. The real estate industry, which accounts for more than a quarter of China’s economic activity, has come under pressure to reduce debt.

“Evergrande is just the tip of the iceberg,” said Louis Tse, managing director at Wealthy Securities, a Hong Kong-based brokerage. Chinese developers were under substantial repayment pressure on dollar-denominated bonds, he added, while markets had become nervous that Beijing would push listed real estate groups to cut the costs of housing in mainland China and Hong Kong.

“That affects the banks as well — if you have lower property prices what happens to their mortgages?” Tse said. “It has a chain effect.”

Shares in Ping An, China’s biggest insurer, fell as much as 8.4 per cent on Monday, after closing down 5 per cent on Friday as it was forced to disclose that it held no exposure to Evergrande debt or equity. Ping An has Rmb63.1bn ($9.8bn) of exposure to the country’s real estate stocks across its Rmb3.8tn of insurance funds.

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

Other Chinese developers including Fantasia Group, which was downgraded last week by Fitch, the rating agency and Guangzhou R&F, have also been under pressure over recent weeks. On Friday, Reuters reported Beijing had told Hong Kong’s property tycoons in closed-door meetings to do more to ease the city’s chronic housing shortage.

Signs of a slowdown across China’s property sector have also hit iron ore prices, which reached a record this year but slumped last week after markets digested the impact of government curbs on steel production.

On Monday, iron ore futures in Singapore fell as much as 11.5 per cent to below $100 a tonne for the first time in over a year. Iron ore prices had tumbled 20 per cent last week, their worst weekly performance since the financial crisis in 2008.

Exchanges in mainland China were closed for a public holiday, but FTSE China A50 index futures traded in Singapore fell as much as 4.3 per cent.

Articles You May Like

Young adults are holding off on moving out of their parents’ house — here’s what’s behind the trend
North Korea ‘supplying Russia’ with long-range rocket and artillery systems
Chinese tech groups build AI teams in Silicon Valley
We’re making another trim of a stock under pressure to protect hard-fought profits
Dallas rating outlook revised to negative by Moody’s