Chinese real estate giant Country Garden has suspended trading in over ten onshore bonds, leading to a sell-off in its Hong Kong-listed shares and impacting other stocks linked to China’s struggling property sector. The company, formerly China’s largest developer by sales, is reportedly considering debt restructuring following a warning of substantial losses in H1 2023. Taken in conjunction with the challenges faced by peer Evergrande which reported losses of over $81 billion in 2021 and 2022, the ongoing crisis in China’s real estate industry seems to be exacerbating.
The real estate sector’s woes stem from a liquidity crisis triggered by weakened buyer demand, hampering China’s post-pandemic economic recovery. While the government has yet to intervene and rescue distressed property firms, calls for increased support from Beijing are intensifying.
China’s economic rebound from COVID-19 has stumbled in recent months due to both domestic and international demand slumps. Data reveals China’s consumer prices experienced their first annual decline in over two years in July, compelling policymakers to consider additional measures to stabilize the economy. Despite such pledges, the lack of detailed plans has left investors disappointed.
Country Garden’s predicament has far-reaching implications, potentially affecting homebuyers and financial institutions. The company’s shares plummeted by 18% to an all-time low upon the suspension of its onshore bonds. This setback compounds the challenges faced by policymakers working to restore confidence in a faltering economy, with other issues, such as delayed payments on investment products, further eroding confidence.
China’s central bank’s unexpected move to lower key interest rates signals concerns about a worsening property market and weakened consumer spending. The People’s Bank of China reduced the one-year loan rate by 15 basis points to 2.5%, along with a 10-basis point cut in a short-term policy rate. This surprise action preceded disappointing economic data for July, revealing a broad decline in consumer spending, industrial output, and investment, accompanied by a rise in unemployment.
The National Bureau of Statistics acknowledges insufficient domestic demand and a need to strengthen the economic recovery’s foundation. These circumstances compelled China to pursue substantial and unusual rate cuts, given underperforming indicators despite rate reductions in June.
China’s economic uncertainty and debt problems are causing global concern, as evidenced by declining stocks and bonds. While policy makers’ rate cut aimed to reassure, it ultimately heightened anxieties about growth recovery efforts.
Investors are navigating challenges including a hawkish Federal Reserve, a slowdown in China, and issues in emerging markets, after a record-setting first half in stock markets.
The iShares MSCI China ETF has been trading in a steep down trend since February 2021 which at this juncture remains intact. The initial enthusiasm about China’s economic recovery waned and the market has been sliding since the onset of 2023. Selling pressure has intensified over the past two weeks and price action appears headed for a re-test of $42.58. A subsequent break below this level would have bearish implications in the short-term and could trigger an extension of the decline to the range of $36.00 and $38.00.
Active traders looking for magnified exposure to China’s equity market may consider our +3x Long China and -3x Short China ETPs. ETPs allow investors to trade in various market conditions and take both long and short positions. ETPs offer exciting opportunities to diversify portfolios, but prudent decision-making is crucial to effectively manage potential risks.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
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