The Hong Kong stock index has dropped below a key support level as economic weakness and fears over the Chinese property sector.
HK50 – Daily Chart
The HK50 index has closed below June’s low on a daily basis. There is a potential to drop lower to the November 2022 lows, but the index can rebound this week.
Hong Kong stocks saw their biggest weekly loss in five months due to concerns about debt contagion in the property sector. There are also financing fears for the shadow banking industry. China’s yuan currency also hit its lowest level since October.
Investors have abandoned a short-term bullish outlook for Chinese stocks by cutting their holdings after Beijing failed to deliver further stimulus measures promised in July.
Markets have been fretting about missed payments from Country Garden and private wealth manager Zhongrong International Trust.
“The market may test a new low as external risks build up and concerns about the strength of the economy intensify,” said Deng Lijun, at Huajin Securities in Shanghai.
Reuters estimated that Country Garden would have to pay more than 9 billion yuan ($1.25 billion) worth of onshore bonds.
“The contagion risks from the real estate sector and trust defaults are a big concern,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “The economy is clearly struggling, and it increasingly looks like the government may not have the tools to arrest it.”
Data from property agents and private data providers suggest that the slump in the real estate market may be worse than official reports say. On Wednesday, China’s leaders vowed to increase domestic consumption and support the private sector, but markets needed more details. Talks may be ongoing for a Sunday announcement.
Morgan Stanley was the latest investment bank to slash its forecasts for the Chinese economy due to the property market strains. The investment bank now sees gross domestic product rising by 4.7% this year, lower than Beijing’s target.
Foreign investors cut another 1.5 billion yuan ($205 million) worth of equities listed in China and Hong Kong on Thursday, marking the ninth-straight day of outflows. That is tied with the largest bout of selling since Bloomberg began tracking the data in December 2016.
