Chinese property stocks experienced a severe downturn on Monday, marking their most significant loss in nine months. The decline was attributed to growing concerns surrounding the potential liquidation of China Evergrande Group, coupled with fresh indications of strain permeating the industry. According to a gauge from Bloomberg Intelligence tracking developer shares, the sector plummeted by 7.1%, culminating in a staggering loss of nearly $56 billion in valuation for the year. Notably, Evergrande bore the brunt of the downturn, plunging by an alarming 22%.
China Aoyuan Group Ltd. emerged as the most substantial drag on the index, suffering a record-breaking 72% drop after shares resumed trading following an 18-month hiatus. This downturn occurs at a pivotal juncture for developers, who had been anticipating a resurgence in home sales leading up to the Golden Week holiday period set to commence this Friday. However, investors are now bracing for further setbacks within the ailing sector, as the policy-induced rebound observed since late August dissipates more swiftly than anticipated.
Market sentiment was further dampened following an announcement from China’s securities regulator, revealing an inquiry into Ping An Real Estate Co. regarding an overdue loan payment. Additionally, China Oceanwide Holdings Ltd. disclosed its impending liquidation, intensifying concerns within the industry. There is a growing apprehension that Country Garden Holdings Co. may be on the cusp of an imminent default.
In response to the considerable pullback in the developer sector, policymakers are swiftly implementing measures to counteract potential ramifications on local commercial banks. This crisis has the potential to exert sustained pressure on home prices and could potentially erode consumer confidence. Already, these issues have reverberated through commodity markets, with construction companies scaling back restocking efforts in preparation for the impending holiday.
The prevailing malaise also poses a threat to developers with relatively healthier balance sheets. Moody’s Investors Service recently placed two investment-grade companies under review for possible downgrade. The consequences of this downturn are evident in both bond and stock prices, with high-yield developer bonds experiencing a 0.25% drop last week, and the CSI 300 Index falling by 0.7%. Simultaneously, the Hang Seng gauge of Chinese shares tumbled by 2.1% on Monday. Notably, China’s property junk bonds, many of which trade below face value, saw little change on Monday.
Meanwhile, Ping An Real Estate’s 2.75% note due in 2024 plummeted by an unprecedented 5.8 cents, settling at 73.8 cents as of 2:50 p.m. in Hong Kong, according to data compiled by Bloomberg. As policy support dwindles rapidly and a slew of concerns loom over the sector, Chinese property stocks are confronting their most significant challenge in the Far East since the onset of the pandemic.