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    China’s real estate insecurity is persistent and fuels market insecurity

    A list of apartments for sale on display at a real estate office in Shanghai, China on Monday, August 30, 2021.

    Qilai Shen | Bloomberg | Getty Images

    Beijing — China’s real estate stock and bond volatility is hunting down investors — these news headlines could spread sector issues to other economies, S & P Global Ratings said.

    While Evergrande’s share price plunge has eased, the volatility of other Chinese real estate companies continues this month.

    Thursday, Kaisa Stocks then temporarily surged 20% News It can stop the default. Bonds traded in Shanghai by developer Shimao plunged 30% on the same day, reminiscent of the company’s bond plunge earlier this month.

    “Headlines can hurt emotions and promote transmission,” Charles Chan, senior director of S & P Global Ratings and Greater China Country Lead, said in a report earlier this month.

    The risk presented by Mr. Chan is that news coverage of defaults, or even the possibility of defaults, can scare Chinese homebuyers. And that depletion of demand, along with construction companies and other suppliers working with them, will bring developers out of business.

    The consensus among economists is that the downturn in real estate has been curbed, driven by a top-down government decision to limit the real estate industry’s dependence on debt. The People’s Bank of China summarized this view in mid-October. We call Evergrande a unique case and confirm the overall health of the real estate sector.

    But investors are becoming more and more worried about how Beijing’s crackdown will actually take place. The default news of Fantasia, a much smaller developer, and growing funding issues among other developers have begun to exacerbate the sharp sellout.

    It’s unclear if regulators and authorities understand the damage this can do to the offshore market, as many investors aren’t coming back.

    Jennifer James

    Janus Henderson Investors

    The Markiti Boxx index for China’s high-yield real estate bonds has been sticking to a volatile monthly rise after a few weeks, with a drop of nearly 18% in October and a drop of nearly 11% in September.

    Jennifer James, Portfolio Manager and Emerging Markets Analyst at Janus Henderson, said: Investors told CNBC earlier this month.

    To make matters worse for foreign institutional investors, the Chinese system tends to rely on broad government statements and cautious corporate disclosures, as they are usually accustomed to detailed messages from businesses and policy makers.

    This lack of clarity has long been a problem with investing in China-related assets.

    Investors left in the dark

    James said he was familiar with how they behave through news reports days or weeks later, rather than companies announcing during the worst sold-out earlier this month. These include meetings with the government.

    “It’s unclear if regulators and authorities understand the damage this will do to the offshore market, as many investors aren’t coming back,” James said.

    The lack of clarity exacerbated the situation, the research institute’s Rhodium Group said in a note on Tuesday.

    “The most important policy signal wasn’t the signal,” said a Rhodium Group analyst. “It’s clear what concrete actions should be taken to resolve the Evergrande situation and stop the infection of the real estate sector. There was no decision. “

    “Official officials underestimated the seriousness of transmission and systemic concerns, made misleading pledges to prevent complete calculations, and ultimately misinterpreted the first policy discipline that caused property stress. Claimed to have been done. ”

    “If the government intended to build confidence in the direction of financial reform, the result was the opposite,” they said.

    Developers are having a hard time raising money

    In contrast to other industries, Chinese developers were much more dependent on the offshore bond market, which provides access to foreign investors.

    However, the funding channel has begun to run out as negative sentiment towards the real estate company has risen against the backdrop of concerns that Evergrande, which has a debt of more than $ 300 billion, may default.

    According to Dealogic, China’s real estate high-yield bond transactions plummeted to two in October, for a total of $ 352 million. This is a decrease from $ 1.62 billion in nine transactions in September, the highest of 29 transactions, which is equivalent to $ 8.5 billion in January.

    These stringent funding conditions reflect the relatively difficult environment for real estate developers to raise capital on the mainland as well.

    Read more about China from CNBC Pro

    “Many simple things can happen through messaging,” James said. “Someone can come out and say: this is a very important part of our economy and we always support.”

    But one of the latest messages from the People’s Bank of China is The real estate market remains healthy overall.

    As a result, Nomura’s Chief China Economist, Ting Lu, does not expect real estate regulatory changes to take place at least until spring.

    — CNBC’s Weizhen Tan contributed to this report.

    China’s real estate insecurity is persistent and fuels market insecurity

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    The post China’s real estate insecurity is persistent and fuels market insecurity appeared first on Eminetra.

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