China Evergrande’s dramatic liquidity crisis has dragged down the property sector and hit demand for steel and other commodities, causing flow-on effects in regional and global markets.
Shares of other real estate developers plunged on Monday along with Evergrande, whose $300-billion debt and the likelihood of bond payment defaults later this week caused its shares to fall more than 10% in trading in Hong Kong.
Henderson Land Development stock tumbled 13.19%, while New World Development shares sank by 12.27% on news of credit tightening and a major fall in home sales over the past two months.
Shares of Sunac, China’s fourth-largest property developer, also dropped by more than 10%, while those of Greentown China, a state-backed entity, fell more than 9%.
The real estate sector accounts for more than a quarter of economic activity in China and has come under intense pressure in recent weeks to reduce its massive levels of debt.
Beijing is yet to clarify what it will do in regard to Evergrande.
Jenny Zeng, the co-head of Asia fixed income at AllianceBernstein, said if the company collapses it would have a domino effect on other Chinese and Hong Kong developers, as well as a systemic effect on the rest of the economy.
“In the offshore dollar market, there is a considerable large portion of developers (who) are implied to be highly distressed,” Zeng said on CNBC. Developers “can’t survive much longer” if channels enabling them to refinance remain shut, but she said Evergrande only accounted for 4% of the country’s vast property sector and its onshore debt was well collateralized.
Slowdown hits steel price
Meanwhile, officials from Beijing were reported to have told property tycoons in closed-door meetings in Hong Kong on Friday to do more to ease the city’s chronic shortage of housing.
With the government pushing on both fronts, and apparently wanting builders to cut the cost of homes both on the mainland and in Hong Kong, markets have seen the biggest sell-off in property stocks in over a year.
The Hang Seng Property index, which tracks a dozen listed developers, was down by 6.69%, to its lowest level in five years.
The slowdown in the property sector also hit iron ore prices, which plunged 20% last week – the biggest fall since 2008 – after markets realised the effect of state curbs on steel production.
Stock exchanges on the mainland were closed for a public holiday on Monday, but iron ore futures in Singapore dropped below $100 a tonne for the first time in over a year – a fall of more than 11%.
This dragged down numerous mining companies, including BHP and Rio Tinto, and caused the Sydney Stock Exchange to fall by 2.10%.
• By Jim Pollard