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Hong Kong stocks plunged the most in three months on Tuesday, as worries escalated over China’s deteriorating housing market and high US interest rates that show no signs of abating.
The Hang Seng Index sank 3% in early trading, putting it on track for its steepest daily drop since June and its lowest close since November. The benchmark was among the world’s worst performers this year, down over 12%, as investors grappled with China’s economic malaise, real estate crisis, and ongoing US-China tensions ensnaring tech giants.
Last week’s bombshell detention of Evergrande founder Xu Jiayin on allegations of financial crimes spooked markets, raising fears the embattled property titan could collapse and unleash global shockwaves. Evergrande’s potential failure could further destabilize China’s real estate sector and pressure Beijing to resuscitate the industry.
On Tuesday, trading resumed in Evergrande shares following a three-day suspension. The stock climbed 16% to 37 Hong Kong cents, just 1% of its peak value in 2017 before its downhill spiral. Evergrande Property Services also resumed trading, slipping 1.7% to 58 Hong Kong cents. The unit claimed business was normal despite its parent’s woes.
Meanwhile, Evergrande New Energy Vehicle’s shares remained halted pending a significant announcement.
Other property stocks plunged, dragging the broader market down. Shares of Country Garden Services, the property management arm of Country Garden, plummeted 7.7%. Hong Kong developer New World Development plunged 7.2%.
The rout comes on the heels of industry data showing China’s top 100 developers continue struggling with anemic demand. September sales by these firms fell 29% year-over-year, marking the fourth straight monthly decline, according to Shanghai research group CREIC. However, the drop was slightly less severe than August’s 35% crash.
Nomura analysts said Beijing’s intensifying property stimulus over the past month helped curb the bleeding. But policy relaxation alone won’t revive stock market morale or homebuying fervor, they said.
China has unleashed a wave of support measures, including mortgage rate cuts and eased purchasing limits, to resuscitate its comatose housing market. However, these have failed to significantly boost an industry battered by debt woes, defaults, and homebuyers’ strike.
At the same time, the highest US Treasury yields since 2007 signaled the Federal Reserve’s steely commitment to taming inflation through aggressive rate hikes.
“This yield surge reflects the market’s response to Fed messaging that it remains laser-focused on keeping borrowing costs high to fight inflation,” said Stephen Innes of SPI Asset Management.
Rising US rates have dragged on Asian markets already weakened by China’s economic strife. Japan’s Nikkei 225 shed 1.3% on Tuesday, while Australia’s S&P/ASX 200 lost 1.1%. Chinese and South Korean exchanges remained closed for holidays.
US stock futures edged lower in early trading after the Dow Jones Industrial Average slipped 0.2% on Monday. S&P 500 futures and Nasdaq 100 futures also retreated slightly following the S&P 500’s flat finish and the tech-heavy Nasdaq’s 0.7% advance.
With Evergrande teetering, its detained founder facing criminal probes, and China’s housing market still in distress, Hong Kong stocks face significant headwinds. Moreover, the Fed’s hawkish stance on inflation could fuel further market uncertainty. But China’s strengthening property stimulus and the US economy’s resilience may offer glimmers of hope.
For Hong Kong investors, the path ahead remains challenging. But with prudent expectations and a long-term view, the clouds overhanging China’s real estate sector may eventually lift.