Hang Seng Index, People’s Bank of China, Evergrande, Shimao Group – Talking Points
- Hang Seng points higher on easier PBOC policy, additional stimulus
- This week’s FOMC meeting and Evergrande fallout remain as headwinds
- Property sector listings continue to weigh on Hang Seng performance
In a volatile session to begin an event-laden trading week, the Hang Seng Index closed slightly lower as property sector giants continue to weigh on overall market sentiment. The Hang Seng Index was up as much as 1.6% in the session, but gave back gains as shares of Shimao Group fell sharply. Since February, the Hang Seng has lost roughly 20% as it weathered numerous regulatory crackdowns and extreme uncertainty in the property sector.
Monday’s session in Hong Kong saw notable selling among Chinese property developers, as a selloff in the dollar bonds of Shimao Group renewed fears over the state of China’s property sector. The aforementioned dollar bonds of Shimao dropped as much as 12 cents on the dollar, with selling soon cascading to other property giants such as KWG Group and Sunac China Holdings. The potential remains that credit stress in China has not yet peaked, as property giants face a rising tsunami of coupon payments and bond maturities in early 2022.
Hang Seng Index Daily Chart
Chart created with TradingView
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Troubles in the real estate sector have forced the hand of policymakers in Beijing, with the PBOC recently electing to cut the country’s reserve requirement ratio (RRR) by 0.5%. The policy move decreases the capital banks must set aside, in theory allowing for more liquidity to enter the marketplace. This move by Beijing is expected to allow roughly $188 billion to flow into the financial system. The potential for a large divergence in policy between the PBOC and the Federal Reserve could make way for a period of outperformance of Hong Kong and onshore equities as the PBOC adopts pro-growth policies.
In its statement, the PBOC said it was not going to flood the financial system with stimulus in order to maintain a stable monetary policy. The recent moves could be seen as preventative as China’s property sector comes under pressure, following Evergrande’s recent default. Recent comment’s from PBOC Governor Yi Gang have portrayed the Evergrande crisis as a “market event,” and that the fallout will be handled in a “market oriented way.” This appears to show that the central bank may not directly bail out Evergrande and instead opt to support the broader economy through easy monetary policy.
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--- Written by Brendan Fagan, Intern
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