Fears of contagion from China Evergrande Group intensified, dragging down everything from bank stocks to high-yield dollar bonds
Growing investor angst about China’s real estate crackdown rippled through markets on Monday, adding pressure on the Chinese government to prevent financial contagion from destabilizing the world’s second-largest economy.
Hong Kong real estate giants including Henderson Land Development Co. suffered the biggest selloff in more than a year as traders speculated China will extend its property clampdown to the financial hub. Fears of contagion from China Evergrande Group intensified, dragging down everything from bank stocks to high-yield dollar bonds.
Hong Kong’s benchmark Hang Seng Index slumped 3.3%, its biggest loss since late July. The selling also spilled over into the Hong Kong dollar, offshore yuan and S&P 500 Index futures. Holiday closures in much of Asia may have exacerbated the volatility, traders said.
The price action across several asset classes in Asia today is horrendous due to rising fears over Evergrande and a few other issues, but it could be an overreaction due to all of the market closures, said Brian Quartarolo, portfolio manager at Pilgrim Partners Asia.
It’s what the Chinese would describe as trying to get off a tiger, said Justin Tang, head of Asian research at United First Partners.
The repercussions from Evergrande’s prospective collapse will likely contribute to China’s ongoing economic deceleration, which in turn anchors global growth and inflation, and casts a pall over commodity prices, wrote analysts led by Phoenix Kalen, head of emerging-market strategy in London.
Hong Kong real estate companies took the brunt of the selling Monday, with the Hang Seng Property Index tumbling 6.7% for its biggest drop since May 2020. Henderson Land dived 13% and Sun Hung Kai Properties Ltd. dipped 10%, the most since 2012.
Chinese officials told Hong Kong developers that Beijing is no longer willing to tolerate what it calls monopoly behaviour, Reuters reported Friday. The officials didn’t lay out a roadmap or a deadline, according to Reuters, which cited unidentified developers.
This is a paradigm shift, said Hao Hong, chief strategist at Bocom International, referring to the Reuters report. People need to keep a close look.
The Hong Kong dollar declined to the lowest level this month, while the offshore yuan dropped for a third day. FTSE China A50 Index futures shed 3.2% in Singapore. Mainland financial markets are closed for public holidays until Wednesday, when Hong Kong will be shut. S&P 500 Index futures declined 1.2%.