China’s stocks fell and the yuan weakened near an 11-month low after the collapse of a private developer spurred concern the industry may face defaults as economic growth slows. Money-market rates jumped.
China Vanke Co. and Poly Real Estate Group Co., the nation’s biggest developers, slumped at least 1.3 percent. Country Garden Holdings Co. plunged 12 percent in Hong Kong after its chief financial officer quit. China Construction Bank Corp. (939), a creditor of Zhejiang Xingrun Real Estate Co., which collapsed with 3.5 billion yuan ($565 million) of debt, dropped in Hong Kong and Shanghai trading.
The Shanghai Composite Index (SHCOMP) fell 0.2 percent to 2,021.73 at the close. Zhejiang Xingrun’s collapse came less than two weeks after the first on-shore bond default by a Chinese company, heightening concern about credit risks in the real-estate industry and pushing stock traders to double their bets against some of the biggest developers.
“We are still seeking a bottom for the market,” Zhang Yanbing, an analyst at Zheshang Securities Co., said in Shanghai. “The economy is not doing well and it’s being exacerbated by property debt problems. Yuan depreciation is adding to the negative sentiment.”
The CSI 300 Index slid 0.8 percent, dragged down by technology companies such as Goertek Inc. (002241) The Hang Seng China Enterprises Index (HSCEI) added 0.2 percent. The Bloomberg China-US Equity Index rose 1.1 percent in New York yesterday.
The Shanghai measure has fallen 4.5 percent this year as economic data from manufacturing to exports signaled a slowdown and concern grew a weaker yuan will trigger capital outflows.
Investors pulled a net HK$1.7 billion of funds from the IShares FTSE A50 China exchange-traded fund on March 17, the most since April 9, 2013 and the second-biggest outflows since July 2009, data compiled by Bloomberg show. The withdrawals came on the first trading day after the central bank announced it was widening the yuan trading band.
The collapse of Zhejiang Xingrun follows Shanghai Chaori Solar Energy Science & Technology Co.’s missed coupon payment on March 7. The bond default may have been China’s “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, according to Bank of America Corp.
Poly Real Estate, the second-biggest developer, retreated 1.6 percent to 6.77 yuan. China Vanke, the largest, slumped 1.3 percent to 7.50 yuan in Shenzhen.
The People’s Bank of China said it didn’t participate in an “emergency meeting” yesterday on the collapse of Zhejiang Xingrun. Officials from PBOC and China Banking Regulatory Commission branches in Ningbo city joined meetings yesterday on how to contain risks from the collapse, said three government officials with knowledge of the matter, who asked not to be identified as they weren’t authorized to speak publicly about the matter.
Creditors including China Construction Bank and officials from Ningbo and Fenghua, where the developer is based, also participated in the discussions on possible resolutions including a bailout of the developer by the local government, the officials said.
Stock traders have doubled bearish bets against some of the biggest Chinese developers trading in Hong Kong amid growing concern that a weaker real-estate market will curb property sales just as borrowing costs surge.
“I see more downside in the share prices,” said Peter Elston, the Singapore-based head of Asia-Pacific strategy at Aberdeen Asset Management Plc, which oversees about $321 billion. “When property companies get into trouble, generally the weak companies start to get into trouble first. If property price weakness starts to become more pronounced, that’s going to impact the broader market.”
Short interest in Evergrande Real Estate Group Ltd. (3333), the fourth-largest developer by market value, was at 8.4 percent yesterday, up from 3.2 percent a year ago, according to data compiled by Bloomberg and Markit Group Ltd. Wagers against Guangzhou R&F Properties Co. and Agile Property Holdings Ltd. have both reached the highest since December 2012. Evergrande dropped 1.8 percent today, while Guangzhou R&F rose 0.3 percent and Agile Property gained 0.2 percent.
“I think the short China real estate ‘trade’ is a bit crowded as many of the mainland property developers are already trading at substantial discounts to book value,” said Tony Hsu, a Shanghai-based money manager at Dalton Investments.
Country Garden slid the most since November 2008 after the developer said CFO Estella Ng will resign April 30 for personal reasons. The company didn’t name a successor.
China’s faltering bond market is forcing banks to pick up the slack, spoiling Premier Li Keqiang’s efforts to spread financial risks as defaults extend from solar companies to real-estate developers.
China Construction Bank, the nation’s second-biggest lender, lost 0.8 percent in Shanghai and 0.4 percent in Hobg Kong. China Citic Bank Corp. declined 1.3 percent to 4.60 yuan, extending losses to 16 percent over the past week after the central bank blocked its plans to offer virtual credit cards with Tencent Holdings Ltd. and an affiliate of Alibaba Group.
The overnight repurchase rate, a gauge of interbank liquidity, rose 57 basis points to 3.46 percent in Shanghai, the highest since March 4, according to a weighted average from the National Interbank Funding Center.
The yuan fell 0.13 percent to 6.20 per dollar in Shanghai, China Foreign Exchange Trade System prices show. The currency touched 6.2009 earlier, the lowest since April 9. A weaker Chinese currency makes it more costly for developers borrowing in U.S. dollars.
The Shanghai index trades at 7.6 times projected 12-month earnings, compared with a multiple of 10.1 for the MSCI Emerging Markets Index, according to data compiled by Bloomberg. Trading volumes were 16 percent below the 30-day average for this time of day, data showed.
To contact the reporter on this story: Weiyi Lim in Singapore at firstname.lastname@example.org