Hong Kong Stocks Plunge Amidst China Property Crisis and Mounting US Rate Fears - Critical Insights Inside!
Hong Kong stocks tumble as Chinese property concerns and US rate fears weigh heavily, marking the largest decline in three months
Hong Kong stocks experienced a significant decline when trading resumed after a Chinese holiday. The market was particularly concerned about the weak housing market in China and the persistently high interest rates in the United States. On Tuesday morning, the Hang Seng Index dropped by 3%, marking its worst day in three months and the lowest closing since November.
The gauge has been one of the poorest-performing indices globally this year, experiencing a decline of over 12%. Concerns surrounding China's economic slowdown, a downturn in the property market, and tensions between Beijing and Washington that have impacted technology companies have gripped investors.
Chinese authorities recently detained Xu Jiayin, the founder and chairman of Evergrande Group, on suspicion of criminal activities. This development has unsettled markets and generated fears that the troubled property giant may face liquidation. The potential collapse of the company could exacerbate global market instability and increase pressure on Beijing to revive its struggling real estate sector.
Shares in Evergrande resumed trading on Tuesday following a three-day halt, witnessing a 16% surge to trade at 37 Hong Kong cents (4.7 US cents), which is merely 1% of its highest peak in October 2017. Simultaneously, Evergrande Property Services' stock also resumed trading, experiencing a 1.7% decline to 58 Hong Kong cents. In a filing on Monday, the property services division of Evergrande assured that its operations continue to function normally.
Trading in Evergrande New Energy Vehicle, the electric vehicle subsidiary of the company, has been halted until further notice. A filing on Tuesday stated that this suspension is due to an impending announcement concerning "inside information."
Hui Ka Yan, chairman of property developer China Evergrande, attends a news conference on annual results in Hong Kong, China March 29, 2016.
Bobby Yip/Reuters/FILE
Evergrande's chairman has been arrested, putting the company's survival at risk. This has had a severe impact on other property developers, causing a significant downturn in the market. Country Garden Services, the property services branch of Country Garden, experienced a 7.7% decrease in value. Similarly, the Hong Kong-based real estate firm New World Development saw a 7.2% decline in their stocks.
China's top 100 developers continue to struggle with weak buyer demand, resulting in significant losses. Industry data reveals that total property sales by these developers plummeted by 29% in September compared to the previous year, marking the fourth consecutive month of decline. However, this decline is a slight improvement compared to August, which saw a decline of 35%.
Nomura analysts stated in a research report on Tuesday that the slight improvement was primarily attributed to Beijing's property support in the previous month. Nonetheless, they further mentioned that while the ongoing policy relaxation would help stabilize property sales, it would not be sufficient to stimulate confidence in the stock market.
Persistently high US rates?
China has implemented a range of measures aimed at revitalizing the struggling property market in the country. These measures include reducing mortgage rates and eliminating limitations on home purchases in various Chinese cities.The market sentiment was also weighed by concerns that US interest rates could stay elevated after US Treasury yields hit a 16-year high.
A worker operates machines at a texile factory in Nantong, in eastern China's Jiangsu province on September 14, 2023.
Stringer/AFP/Getty Images
The 10-year US Treasury yields, seen as an indicator of US interest rates, reached their highest level since 2007, reaching 4.7% on Monday.
Stephen Innes, managing partner for SPI Asset Management, stated that the increase in yields is a result of the market's response to the Federal Reserve's message about their commitment to maintaining high borrowing costs in order to address inflation. In the Asia-Pacific region, the Nikkei 225 in Japan fell by 1.3%, and Australia's S&P/ASX 200 experienced a loss of 1.1%. The Chinese and South Korean markets were closed due to public holidays.
Dow futures experienced a 0.1% decline in US pre-market trading. Similarly, futures for the S&P 500 and Nasdaq also observed slight decreases. The previous day, the Dow Jones Industrial Average concluded with a 0.2% decrease. On the other hand, the S&P 500 Index remained unchanged, while the Nasdaq witnessed a 0.7% increase.
