Aug 21, 2023

Hong Kong stocks have fallen below key support levels due to a weak economy and concerns about China’s uncertain real estate sector.


HK50: Daily chart

The Hang Seng Index recently closed below its June lows on the daily chart, which indicated a potential return to the decline of the November 2022 lows. Things could pick up this week, though.

Hong Kong’s stock market took a nosedive last week, its most significant drop in five months. Investors are worried about the amount of debt in the property sector and about the shadow banking sector. The Chinese currency also fell to its lowest level since October last year.

Investors got spooked when Beijing didn’t follow through on the stimulus measures they promised in July, and they started selling Chinese stocks. This has dampened the short-term outlook for Chinese equities.

The market has been concerned about the failure of Country Garden and private wealth management company Zhongrong International Trust to pay their debts and default on their trusts.

Teresa Teng, an analyst at Shanghai Huajin Securities, said: “As external risks accumulate and concerns about economic strength intensify, the market may test new lows.”

Reuters estimates that Country Garden must pay more than 9 billion yuan ($1.25 billion) in onshore bonds.

Vey-Sern Ling, managing director of Swiss Private Bank, said: “The risk of contagion from the real estate sector and trust defaults is a big problem. The economy is clearly struggling, and the government seems increasingly unable to prevent this from happening.”

The market is concerned that the failures of Country Garden and Zhongrong International Trust could lead to a broader crisis in the Chinese economy. The real estate sector is a significant part of the Chinese economy. If it collapses, it could have a ripple effect. The government is trying to contain the crisis, but it needs to be clarified if it will be successful.

China’s economic growth is slowing, and the market is awaiting further details of government plans to support the economy.

Morgan Stanley has cut its Chinese economic growth forecast to 4.7%, below Beijing’s target of 5.5%. The bank cited pressure on the real estate market for the downgrade.

Foreign investors have been reducing their holdings of Chinese stocks in recent weeks. On Thursday, they sold 1.5 billion yuan ($205 million) worth of mainland and Hong Kong-listed stocks, marking the ninth straight day of outflows.

On Wednesday, China’s leaders vowed to increase domestic consumption and support the private sector. However, the market is awaiting further details on these plans. Announcements may be made on Sunday.

Data from real estate agents and private data providers suggests that the downturn in the housing market could be more severe than official reports indicate.

The slowdown in China’s economy is a significant concern for the global economy. China is the world’s second-largest economy and a substantial driver of global growth. The slowdown in China’s economy could have a ripple effect on other economies worldwide.

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