What’s behind Hong Kong bloodbath? Evergrande sinks to all-time-low, Hang Seng Property bleeds

Highlights

  • Evergrande shares have crashed to an all-time low; Hang Seng Index is at 52-week low; and Hang Seng Property Index has sunk to its lowest since the global recession.
  • Other Chinese property stocks are also down by double digits in intra-day session.
  • Fear of default by Evergrande is causing panic among investors.
  • As Evergrande is expected to default, a large systemic risk looms large on Chinese economy

Shares of the embattled Chinese property company, China Evergrande Group, continue to be hammered by shareholders, as it has lost 30.53% in the last five trading sessions. Investors are rushing to sell the shares of the company on fears of looming debt default.

The company saw its scrips plunge by as much as 17% at Hong Kong exchange, before recovering partially. At the time of filing this copy, shares of the company were trading at HK$2.23 each – down 12.2%.

On Monday, Evergrande shares plunged to an all-time low. The sell-off in Evergrande shares led to a bloodbath in the broader Hang Seng index as well – which is now down to its lowest point for nearly a year.

The Hang Seng index came crashing below the 24,000 mark – the level seen in September last year, when global markets were fast recovering from the COVID-19-induced bear run of March 2020.

At the time of filing this copy, Hang Seng was trading at 24,048.38 – down 872.38 points (3.50%).

The effect was far more brutal on the Hang Seng Property Index – which has now crashed below the levels seen in 2008 recession. At the time of filing this copy, the index was trading at 27,095.93, down 1,999.73 points (6.87%).

Other large Hong Kong property stocks such as New World Development and Henderson Land were also seeing double figure drops in their prices on Monday amid widespread expectations that Evergrande, which is sitting on a pile of debt worth US$300 billion, will default on some of its repayments this week. Meanwhile, New World Developments shares were trading down 11.54%, while Henderson shares were down 13.19%.

The market is gripped with fears that Evergrande default could cause a possibly chaotic domino effect through the Chinese economy and beyond – leading to a systemic risk and severe liquidity crunch. The large ticket defaults lead to massive liquidity crunch in the economy, along with systemic risk – like in the case of India, when infra behemoth IL&FS defaulted in August 2019.

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