Chinese property stocks tumbled to their lowest levels since October 2011 as worries about liquidity and weak housing demand intensified ahead of a weeklong trading break on the mainland.
A Bloomberg Intelligence gauge of developer shares closed down 3.5% on Wednesday. The biggest drag was CIFI Holdings Group Co., which plunged 59% as trading resumed following months of suspension. The gauge is now down more than a third for the year, compared with the 9% decline in the broader Hang Seng China Enterprises Index.
The selloff has now erased all of the sector’s gains since China’s reopening rally took off at the end of October. Investors are bracing for further troubles at some distressed builders after policy support failed to drive a sustainable recovery in home sales. While developers are counting on the Golden Week holiday to revive sales momentum, a stream of negative headlines on the sector’s distress may keep buyers away.
Just this week, fresh drama unfolded at China Evergrande Group, with its restructuring process coming to a halt and its billionaire chairman put under police control. China Oceanwide Holdings Ltd. is getting liquidated while Ping An Real Estate Co. denied it has defaulted on debt after the nation’s regulator said it’s launched an inquiry over an overdue loan payment.
That’s as Country Garden Holdings Co. faces another round of interest payments on Wednesday, keeping investors on edge as they brace for a potential default by a major developer.
The government will have to “eventually provide some solution to Country Garden and other failing or failed developers, if not, it would be difficult to boost housing and investor sentiment,” said Jeremy Yeo, an analyst at SMBC Nikko Securities Inc.
Meanwhile, the broader market advanced as the country’s industrial profits rose for the first time in more than a year in August, pointing to signs of stabilization in other parts of the economy. The HSCEI gauge rose 0.7% while the CSI 300 Index advanced 0.2%.
China’s offshore junk bonds, most of which were issued by builders and which were once one of the world’s most lucrative fixed-income trades, have lost more than $127 billion in value since peaking just two and a half years ago.
The crisis is threatening to push China’s economic growth to below Beijing’s target for the year. A new Bloomberg survey shows the economy is projected to expand 5% — a 10 basis point-downgrade from an earlier poll — with analysts citing property as the biggest challenge for the nation.
The property market could take as long as a year to recover, according to a former central bank adviser, who’s urging Beijing to do more to encourage lending to developers to halt the spread of default.
--With assistance from Alice Huang.