Evergrande has seen an impressive spike in shares even though both the HSI and the property sector in China are still struggling.
Chinese property developer Evergrande saw its shares jump 82% on Wednesday, outperforming other publicly listed companies on the Hang Seng Index (HSI). Evergrande shares closed at HK$0.640 after climbing 82.86%, according to data from MarketWatch. The company’s previous close was HK$0.350.
In the last 5 days, Evergrande shares have climbed over 137%. However, the company has been trading in the red, losing over 60% over the last few months. In addition, Evergrande has lost 61.21% year-to-date (YTD).
The HSI generally had the real estate sector as the top performer. Companies like Logan Group and Country Garden Holdings both rose at least 60% to boost the HSI. However, the index was derailed by industrial and healthcare stocks.
China has had issues with its property sector for a while, especially since the Evergrande default in 2021. China’s Securities Times today released a publication on the industry, asking the government to suspend any policies that prevent property acquisitions “in cities other than the hottest top tier cities.” According to the publication, the current climate makes such restrictions inappropriate, especially since they were initially introduced to reduce speculation. The release argued that it is important to implement policies that will encourage sales as quickly as possible.
In July, Evergrande released an earnings report that revealed a heavy combined loss of $81 billion for 2021 and 2022. The company said it lost 476 billion yuan ($66.36 billion) in 2021, and 105.9 billion yuan ($14.76 billion) in 2022. The losses came from property write-downs, losses from financial assets, land returns, and other costs. Evergrande’s default has cost the company quite a bit, easily seen when the reported loss is compared with the 8.1 billion yuan profit recorded in 2020.
Evergrande, Country Garden, and China’s Property Sector Shares
When Evergrande defaulted, the company’s total liabilities were at $300 billion. However, this increased to $340 as of the end of 2022.
China’s property sector might be heading for more losses as Country Garden Holdings is also struggling. Although the company’s stock has climbed nearly 27% in the past month, its YTD performance shows a 48% plunge. Country Garden Holdings has also lost more than 32% in the past year. There are now fears that this indicates more problems for the property sector, especially as Country Garden narrowly missed a default. According to Natixis chief economist for Asia-Pacific in an August note, “Country Garden was considered the darling of real estate developers when Evergrande defaulted on its debt back in late 2021, as it had a much better-managed balance sheet. The rapid worsening of Country Garden’s profitability is a sign of how systemic real estate problems are in China.”
Analysts believe that a Country Garden collapse may be more devastating than Evergrande. This is because Country Garden caters more to mass-market housing instead of big cities and would significantly affect the populations in the places. Reports suggest that in 2022, nearly 60% of all Country Garden sales were in China’s lower-tier cities, instead of first-tier places like Shanghai or Beijing.
Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge.
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