Hong Kong property sector drags down global markets

Hong Kong property sector drags down global markets

MAIN IMAGE: Adriaan Pask, PhD. Wealth CIO

Adriaan Pask, PhD. Wealth CIO

Market commentary

Markets started the week on a sombre note after growing solvency concerns of China’s property group Evergrande alarmed investors.

“Beijing has ordered Hong Kong’s powerful property tycoons to do more to help solve the financial hub’s potentially destabilising housing shortage”, Reuters reported last week.

On Monday, Evergrande was one of the largest decliners, falling about 17% on the Hang Seng Index, which impacted the rest of the property sector and banking shares. “The developer has been scrambling to raise funds to pay its many lenders, suppliers and investors, with regulators warning that its $305 billion of liabilities could spark broader risks to the country’s financial system if not stabilised. It is due to pay $83.5 million interest on Thursday for its March 2022 bond,” Reuters noted.

The extended regulatory intervention of Chinese authorities on the property market comes after weeks of uncertainty following Beijing’s recent crackdown on technology companies. This caused indices in Hong Kong to close down by 3.3% on Monday.

“Holidays in Japan, China and South Korea kept trading thin, and politics added extra uncertainty with elections in Canada and Germany bookending the week.” Traders also remained nervous as Macau began an overhaul of the rules governing ‘Asia’s Las Vegas’. Meanwhile, “China’s top securities regulator defended their clampdown in various industries in a private meeting with Wall Street executives,” Bloomberg News reported.

European markets closed lower, with Frankfurt’s DAX losing more than 2% on concerns over global growth and as investors braced themselves for key central bank meetings this week. “On the political front, Social Democrat Olaf Scholz won a third election debate on Sunday, cementing his position as a front runner to succeed Chancellor Angela Merkel after Germans go to the polls in a week.”

Mounting concerns about Chinese regulations and the health of the global economy impacted Wall Street, which opened sharply lower on Monday. Investors will now wait to see what the US Federal Reserve says about tapering pandemic-induced stimulus packages. “The Fed has already made it clear that tapering could occur this year, but investors are waiting for more details, particularly after mixed economic data released last week added to the confusion.”

The JSE’s followed global markets on Monday, falling 2.24%, the largest one-day drop in a month, as Chinese regulations weighed on sentiment and concerns over key monetary policy changes expected this week. A firmed US dollar also put commodities under pressure, with Brent crude down by more than 1.5% to around $74.42 a barrel at 19h30. According to Trading Economics: “copper, considered an economic barometer, tumbled more than 3% to a one-month low of $4.1/tonne. Other metals also declined, with zinc down almost 2% to $3 011/tonne and aluminium off 13-year highs to below $2 900/tonne. Iron ore plunged almost 8% to $104.5, the lowest since July 2020.”

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