ZINGER KEY POINTS
- China’s housing crisis intensifies as state-owned property developers report significant losses.
Warnings from China’s state-owned property developers have sent ripples of concern throughout global markets, raising fears that the housing crisis is no longer confined to the private sector but is spreading to government-backed companies as well.
Amid China’s persistent housing slump, previously immune state-owned enterprise builders are now grappling with financial losses.
An analysis of corporate filings by Bloomberg reveals that 18 out of 38 such builders listed in Hong Kong and mainland China have reported preliminary losses in the six months leading up to June 30. This represents a significant increase from the 11 that had forewarned of full-year losses in the preceding year.
Domino Effect Starts To Propagate
In the private developers front, even established names like Country Garden Holdings Co. are feeling the heat as China’s home sales plummeted remarkably in the past month, culminating in heightened concerns of a looming default.
Country Garden’s offshore dollar bond maturing in January 2024 is currently trading at below 10 cents to the dollar, as the property development company missed an interest payment earlier this month and entered a month-long grace period.
The property crisis has now spread widely throughout China’s shadow banking sector. At the end of July, Zhongzhi Enterprise Group Co., an asset management company with over 1 trillion yuan ($137 billion), suspended payments to thousands of customers, drawing the notice of regulators and the media.
Once-China’s largest real estate company, Evergrande sought bankruptcy protection from creditors in a U.S. court on Thursday, as part of the ongoing debt restructuring.
Banks Cut Chinese Outlook
Major investment banks such as Nomura Holdings Inc., Morgan Stanley, and JPMorgan Chase & Co. have all recently revised their growth estimates downward, casting a grim picture for the outlook of the Chinese economy.
Nomura has scaled back its growth forecast for China in 2023 to 4.6%, citing disappointing data from July and an ongoing “downward spiral” within the economy. Likewise, Morgan Stanley and JPMorgan Chase & Co. have revised their predictions to 4.7% and 4.8%, respectively, illustrating the consensus on the challenges ahead.
Market Reactions: The Beginning of The End?
In response to these developments, the Shanghai Composite fell by another 1% on Friday, closing at 3,132, while the Shenzhen Component experienced a sharper drop of 1.75% to 10,459.
The downturn hit the Hong Kong’s equities market, where stocks in the Hang Seng Index plummeted by 2.05%, resulting in a weekly decline of 5.9%—marking the third consecutive drop.
The iShares MSCI Hong Kong Index Fund and the iShares MSCI China ETF have both fallen by nearly 10% month to date.
The largest U.S.-listed Chinese stocks, Alibaba Group Holdings Ltd., is down 3.3% in the premarket trading on Friday, which would extend the weekly dip to 7%.
Chart: Month-to-Date Performance of China-Related ETFs and Alibaba Stock
—
Originally Posted August 18, 2023 – China’s State-Owned Developers In Crisis: Global Alarm Over Intensifying Housing Downturn
Disclosure: Benzinga
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Benzinga and is being posted with its permission. The views expressed in this material are solely those of the author and/or Benzinga and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Join The Conversation
If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.