Chinese Equity Updates

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The Hong Kong stock market collapsed on Monday in a decline that spilled over to European stock exchanges as a growing liquidity squeeze at Chinese property developer Evergrande showed signs of spreading beyond the sector.

Chinese and Hong Kong real estate groups were at the center of the market crash, falling to their lowest levels in half a decade amid growing angst over the fate of Evergrande, the world’s most indebted real estate developer .

The group faces obligations of more than $ 300 billion to creditors and other companies, and a critical deadline for paying interest on its offshore bonds looms Thursday.

Hong Kong-listed shares of Evergrande fell 18.9% on Monday. The drop underscored concerns about the overall health of the Chinese real estate sector and triggered a wider sell-off, sending the Hang Seng Property Index, which tracks a dozen listed developers, down nearly 7%, to its lowest. level since 2016.

Hong Kong’s larger Hang Seng Index fell 3.5%, pushing the benchmark down nearly 12% for the year. European markets also fell, with the regionally Stoxx 600 down 1.7 percent and markets in Germany and France down 1.9 percent and 2 percent respectively. London’s FTSE 100 lost 1.3 percent.

Futures on the S&P 500 fell 1%, signaling the sell-off could extend to Wall Street as stock trading reopens in New York. The Vix, the so-called Wall Street fear gauge that measures expected volatility on the S&P, hit 24.5, around its highest level since May 12.

“It’s too early to talk about contagion [from Evergrande] but it’s just another data point of what we’ve already seen in China that worsens risk sentiment, ”said Anthony Collard, UK and Ireland investment manager at the private bank by JPMorgan.

Evergrande, whose stock price has fallen since he warned of the risk of default last month, said senior executives would face “severe punishment” after getting prepayments on products from the company. ‘investment.

Exchanges in Hong Kong indicated that growing fears for the real estate sector were weighing on other developers and financial institutions.

“Evergrande is just the tip of the iceberg,” said Louis Tse, managing director of Wealthy Securities, a Hong Kong-based brokerage firm. Chinese developers are under considerable pressure to repay dollar-denominated bonds, he added, as markets have become nervous about Beijing pushing listed real estate groups to cut housing costs by Mainland China and Hong Kong.

“It also affects the banks – if you have lower house prices, what happens to their mortgages? »Said Tse. “It has a chain effect.”

Shares of Ping An, China’s largest insurer, fell 8.4% on Monday, after closing down 5% on Friday as it was forced to disclose it had no exposure to debt. or to the actions of Evergrande. Ping An has 63.1 billion Rmb ($ 9.8 billion) exposure to the country’s real estate stocks through its 3.8 billion Rmb of insurance funds.

Signs of a slowdown in China’s real estate sector have also hit iron ore prices, which reached a record high this year but fell last week after markets digested the impact of government restrictions on production of iron ore. ‘steel.

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

In turn, mining stocks were among the strongest drops on the FTSE 100 as they opened in London, with Anglo American stocks falling 6%.

Stock exchanges in mainland China were closed for a public holiday, but futures on the FTSE China A50 index traded in Singapore fell 4.3%.