Stocks in Hong Kong suffered their worst day in three months on Tuesday on growing concern about China’s weak housing market and persistently high US interest rates.
The Hang Seng Index ended down 2.7% — its biggest drop since early June — after investors returned from a long holiday weekend. The market benchmark is one of the world’s worst performers this year, having fallen more than 12%, and now stands at its lowest level since November.
Despite a recent improvement in data, investors remain gripped by worries about China’s economic slowdown, a property market slump, and frictions between Beijing and Washington that have caught tech companies in the crosshairs.
Real estate stocks were once again among the heaviest losers in Hong Kong.
Country Garden, one of the country’s largest property developers, sank 4.4%. Its property services arm was down 7.1%. Country Garden has struggled to make debt repayments recently and recorded a huge loss for the first six months. Rival Longfor Properties, a Hang Seng constituent, slid 6.5%.
Shares of Evergrande, however, closed up 28% after resuming trading following a three-day halt. They have lost 75% since a previous 17-month suspension came to an end in August and now trade like a penny stock.
Trading in Evergrande New Energy Vehicle, the group’s EV arm, remained suspended, pending the release of an announcement about “inside information,” the firm said in a filing on Tuesday.
Plunging property sales
Evergrande Group said last week that its founder and chairman Xu Jiayin had been detained by Chinese authorities on suspicion of crimes, sparking fears that the bankrupt developer could face liquidation. A potential collapse of the firm could put global markets on edge and pile pressure on Beijing to revive the sector.
New industry data showed China’s 100 biggest developers are still struggling to recover from weak demand.
Total property sales by the top 100 developers dropped 29% in September from a year ago, marking the fourth straight month of declines, according to data published by Shanghai-based research firm China Real Estate Information Corporation (CRIC) on Saturday. Sales had dropped 35% in August.
The marginal improvement in September was mainly thanks to Beijing’s support for the property market over the past month, Nomura analysts said in a research report Tuesday.
“Continued policy relaxation should stabilize property sales, but is not enough to boost stock market sentiment,” they added.
China has rolled out a series of stimulus measures to boost the country’s ailing property market, including slashing mortgage rates and scrapping restrictions on home buying in Chinese cities.
Persistently high US rates?
Market sentiment was also weighed down by concerns that US interest rates could stay elevated after US Treasury yields hit a 16-year high.
Yields on the 10-year US Treasury, which are considered a proxy for US interest rates, reached 4.7% on Monday, the highest since 2007.
JPMorgan Chase CEO Jamie Dimon said Monday the Federal Reserve could keeping hiking rates until they hit 7%, a contrarian view but one he has shared twice in as many weeks.
“This yield surge reflects the market’s response to messaging from the Federal Reserve, indicating the central bank’s commitment to keeping borrowing costs elevated to combat inflation,” said Stephen Innes, managing partner for SPI Asset Management.
In Asia-Pacific, Japan’s Nikkei 225 dropped 1.6%, and Australia’s S&P/ASX 200 lost 1.3%. Chinese and South Korean markets remained shut for public holidays. European markets were mixed in early trading, while US futures were little changed.
