In the Central district of Hong Kong on July 26, 2021, individuals were seen standing in front of an electronic display showing the Hang Seng Index. Stocks experienced a significant decline as China’s decision to reform the private education sector and prohibit tuition firms from making profits took its toll. This development resulted in Hong Kong’s benchmark stock index closing in bear market territory, with a 2.1% drop in the Friday session and a decrease of more than 20% from the highs seen in January. The uncertainty surrounding China’s property market and growth prospects has contributed to the erosion of gains made earlier in the year.
Adding to the downward trend, it was revealed on Friday that Evergrande, a troubled Chinese real estate giant, had filed for bankruptcy protection in a U.S. court. The company sought shelter under Chapter 15 of the U.S. bankruptcy code, which offers protection to non-U.S. companies undergoing restructuring from creditors.
As a result of this news, the Hang Seng index experienced a plunge, causing several major companies in the region to end the day in red. Tencent dropped 2.34%, Alibaba declined by 3.44%, and HSBC shed 1.1%.
A bear market is defined as a prolonged period of price decline, characterized by a broad market index dropping at least 20% from its recent peak. In this case, the Hang Seng index closed at 17,950.85 on Friday, marking a 20.88% decrease from its peak of 22,688.9 on January 27th.
Russ Mould, the investment director at AJ Bell, highlighted the cause for concern stemming from Evergrande’s bankruptcy filing and Country Garden’s decision to suspend payments on certain bonds. He stated that these events begin to evoke thoughts of a domino effect.
JPMorgan also expressed concerns about the potential contagion effect on emerging markets, particularly due to the ongoing issues in China’s property sector. The Wall Street bank predicted that the property sector would account for nearly 40% of all default volumes in 2023.
While Evergrande faced default in 2021 and initiated an offshore debt restructuring program in March, Country Garden has a more extensive portfolio of property developments.
Please note that this is a breaking news story, and further updates will be available later.
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