China stocks retreat as Evergrande delays debt repayment while PBOC injects US$18.6 billion into market to calm nerves

  • Mainland stocks resume trading after a two-day holiday as crisis at China Evergrande dents trading sentiment
  • Developer is seeking to delay interest payment on local-currency bonds due this week, according to exchange filing

Stocks in mainland China dropped as trading resumed after a two-day holiday as China Evergrande Group’s debt crisis stoked concerns about contagion risks in a slowing economy. Losses narrowed after the central bank injected liquidity to calm nerves.

The Shanghai Composite Index fell 0.3 per cent to 3,603.41 at the midday break on Wednesday. The CSI 300 Index of the biggest companies on the Shanghai and Shenzhen bourses tumbled 1.1 per cent, with sub-gauges of financial and consumer stocks leading the decline.

Hong Kong’s stock market is closed for a public holiday linked to the Mid-Autumn Festival. The city’s Hang Seng Index retreated 2.8 per cent over the past two days amid a rout in local property developers.

The People’s Bank of China injected 120 billion yuan (US$18.6 billion) into the banking system through reverse purchase agreements on Wednesday, partly to prevent the liquidity crunch at Evergrande from reverberating across the financial markets.

An index of financial stocks slumped 2 per cent. China Minsheng Banking lost 2 per cent to 3.89 yuan, while Ping An Bank and China Everbright Bank shed at least 1.8 per cent. The three lenders have the highest credit risks to the property sector, according to Citigroup.

“Evergrande’s debt problem has triggered concerns about the stability of private property developers and contagion risks along the industry chain,” said Li Lifeng, a strategist at Huaxi Securities. “The impact on the property market is controllable and chances of a systemic risk are low.”

Residents walk near the Evergrande corporate name outside a residential complex in Beijing in September 2021 as the developer’s liquidity crisis infects market sentiment.

The Shenzhen-based developer, which carried more than US$300 billion in liabilities at the end of June, is struggling to meet debt repayment deadlines, spurring worries about potential domino effects in the financial sector amid state or regulatory silence.

The developer’s onshore unit has asked to reschedule interest payments due Thursday on local-currency bonds, according to a Shenzhen exchange filing. That came after China’s housing ministry earlier warned that Evergrande would miss some of its loan repayment deadlines this month, according to media reports.

Consumer staple stocks slumped 3.1 per cent, the worst-performing industry group, on concern sporadic outbreaks of Delta and lockdowns will curb spending. Condiment maker Jonjee Hi-Tech sank 10 per cent to 26.97 yuan and Jiangsu Yanghe Brewery slid 5.9 per cent to 166.55 yuan.

Local traders are also keeping a watch on the daily turnover on the onshore market. If the trading values exceed 1 trillion yuan on Wednesday, it will mark a run of 44 consecutive such days, breaking the record stretch of 43 days set in 2015. Half-day combined turnovers on the Shanghai and Shenzhen exchanges amounted to 694.8 billion yuan.

Two debutants both rose in Shenzhen. Hangzhou Wensli Silk Culture, which makes textile products, surged almost 300 per cent from the initial public offering price. Fullink Technology, a maker of telecommunication equipment, jumped 66 per cent.

Other markets in Asia were mixed on Wednesday, with benchmarks in Japan and Taiwan sinking and those in South Korea and Australia advancing before the Federal Reserve open-market meeting with all eyes on its tapering signals.

Author: Zhang Shidong, SCMP

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