Hong Kong stocks fall in week on property developer defaults, while losses in HSBC and Alibaba unnerve investors

  • Kaisa’s liquidity woes reignite concerns about hidden debt among Chinese developers after missing a payment on shadow-banking product
  • An outbreak in Delta cases in mainland China has led to stricter lockdowns, clouding the economic outlook

Hong Kong stocks fell to a one-month low on concerns about widening debt defaults among Chinese developers. A resurgence of the Delta variant in China has led to stricter lockdowns, clouding economic outlook.

The Hang Seng Index tumbled 1 per cent to 24, 985.05 as of the local noon break, the lowest level since October 12. The index has declined about 2 per cent this week, following a 2.9 per cent loss in the preceding week. China‘s Shanghai Composite Index slipped 0.2 per cent.

Property developers Longfor Group fell 1.2 per cent while Country Garden and China Overseas Land each declined by 0.9 per cent. Shares of Kaisa Group were halted from trading after the Shenzhen-based developer missed a payment on some of the 12.7 billion yuan (US$2 billion) of so-called wealth management products.

Debt concerns among Chinese developers revived after Kaisa Group sought more time to come up with a solution to repay investors after they gathered at its offices in Shenzhen. The latest episode undone six years of calm since the company became the first Chinese developer to default on a dollar-denominated bonds in 2015.

The developer added to a string of defaulters after China’s “three red lines” deleveraging campaign shut many out of the loan market. While China Evergrande has struggled to restructure its US$305 billion liabilities, others including Fantasia Holdings and Modern Land have reneged on their offshore borrowings.

Banking stocks also slipped on worries about their exposure to property developers. ICBC and Construction Bank both retreated 1.2 per cent.

China‘s Delta outbreak spread to two more provinces on Thursday, bringing the total to 19 of the nation’s 31 provincial areas. Lockdowns and other strict controls to curb the flare-ups weighed on the economy that has lost momentum over the past two quarters.

Chinese technology stocks also dragged the market lower as the industry benchmark slid 0.8 per cent. Alibaba Group Holding sank 2.9 per cent, while Meituan and Tencent Holdings retreated by at least 1.9 per cent.

Elsewhere, HSBC and Standard Chartered lost more than 3.6 per cent, following steep declines in banking stocks in London after the Bank of England failed to make a widely anticipated interest-rate hike, raising questions about its communications to the financial markets.

Two companies began trading for the first time in Hong Kong. Beijing Airdoc Technology retreated 3.5 per cent to HK$72.50, while Clover Biopharmaceuticals declined 2.8 per cent to HK$13.

Stocks in Asia-Pacific markets were mixed, with benchmarks in Japan and South Korea losing by 0.6 per cent while equities in Australia gained 0.5 per cent.

Author: Cheryl Heng, SCMP

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