Hong Kong’s stock market faced a tumultuous day as it endured its most significant drop in three months on Tuesday. This downward spiral was primarily fueled by mounting concerns surrounding China’s fragile housing market and persistently high interest rates in the United States.
The Hang Seng Index concluded the day down by 2.7%, marking its most substantial decline since early June. This index, a global market benchmark, has experienced a troubling year, plummeting more than 12% and currently residing at its lowest point since November.
Despite recent signs of improvement in economic data, investors continue to grapple with apprehensions regarding China’s economic deceleration, a downturn in the property market, and the ongoing tensions between Beijing and Washington that have ensnared technology companies.
In this bleak scenario, real estate stocks bore the brunt of the market’s turmoil, with Country Garden, one of China’s largest property developers, witnessing a 4.4% decline. Its property services arm was hit even harder, plummeting by 7.1%. Country Garden has been grappling with recent debt repayment difficulties and reported substantial losses in the first six months of the year. Rival company Longfor Properties, also a constituent of the Hang Seng Index, slid by 6.5%.
Interestingly, shares of Evergrande managed to buck the trend, closing with a remarkable 28% gain after a three-day trading halt. However, it’s important to note that Evergrande has shed a staggering 75% of its value since its previous 17-month suspension concluded in August, now resembling a penny stock in terms of trading.
Meanwhile, trading in Evergrande New Energy Vehicle, the group’s EV subsidiary, remained suspended, awaiting the release of an announcement regarding “inside information,” as stated in a filing on Tuesday.
The predicament of Evergrande took a grim turn when the company revealed last week that its founder and chairman, Xu Jiayin, had been detained by Chinese authorities on suspicion of crimes. This development has ignited concerns that the beleaguered developer may face liquidation, a prospect that could send shockwaves through global markets and exert immense pressure on Beijing to resuscitate the sector.
New industry data highlights that China’s 100 largest developers continue to grapple with weak demand. In September, total property sales by these developers plummeted by 29% compared to the same period last year, marking the fourth consecutive month of decline. August had witnessed a 35% drop in sales. While September did show a marginal improvement, primarily due to Beijing’s support for the property market in recent weeks, analysts at Nomura cautioned that these measures alone may not be sufficient to bolster stock market sentiment.
China has implemented a series of stimulus measures to reinvigorate its ailing property market, including reducing mortgage rates and lifting restrictions on home purchases in Chinese cities.
Furthermore, market sentiment was dampened by concerns that US interest rates might remain elevated, following the recent surge in US Treasury yields to a 16-year high. The 10-year US Treasury yields, often seen as a barometer for US interest rates, reached 4.7% on Monday, the highest level since 2007. Jamie Dimon, CEO of JPMorgan Chase, expressed the unconventional view that the Federal Reserve could continue to hike rates until they reach 7%. This view aligns with the Federal Reserve’s commitment to maintaining higher borrowing costs to combat inflation, as explained by Stephen Innes, the managing partner for SPI Asset Management.
The repercussions of these events reverberated across Asia-Pacific markets, with Japan’s Nikkei 225 dropping by 1.6%, and Australia’s S&P/ASX 200 losing 1.3%. Notably, Chinese and South Korean markets remained closed due to public holidays. Meanwhile, European markets experienced mixed early trading, while US futures showed minimal changes.
