### Summary
The risk of a "real Lehman moment" is increasing in China due to a shadow banking crisis and declining property sales, according to Jefferies' global strategist Chris Wood.
### Facts
- 💣 Chinese asset manager Zhongzhi Enterprise's failure to make interest payments on wealth management products indicates a liquidity crisis and highlights the real estate sector's crisis.
- 💰 Chinese equities are a value trap, says Wood.
- 🏢 Evergrande's problems were not a "Lehman moment" because they were induced by the authorities through the "Three Red Lines" policy.
- 🚫 President Xi Jinping's anti-corruption campaigns and last year's lockdowns have dampened entrepreneurial spirits and damaged China's command economy model.
- 📉 The residential property market's biggest downturn since privatization in the mid-1990s was undermined by lockdowns, even after the relaxation of the "Three Red Lines" policy.
- 💼 For those who believe China is in a "balance sheet recession," owning a dividend index and long government bonds is a recommended strategy.
### Summary
The global financial markets are facing multiple challenges, including the crisis in the Chinese property market, rising U.S. bond yields, and declining U.K. retail sales, causing concerns among investors.
### Facts
- 📉 The Chinese property market crisis, combined with Country Garden's bond payment suspension, raises concerns about China's real estate sector.
- 🌧️ U.K. retail sales fell by 1.2% in July, dampening sentiment.
- 🌎 The global markets are experiencing a "perfect storm" due to surging interest rates, weak economic data in China, summer liquidity issues, and a lack of fiscal stimulus.
- 💼 Barclays suggests employing a "barbell" investment strategy, focusing on both cyclical and defensive stocks with a value tilt.
- 💸 The upcoming Jackson Hole symposium and flash PMI readings will provide further insight into the market's direction.
- ⬇️ David Roche from Independent Strategy warns that markets may face a significant downside if geopolitical and macroeconomic risks are fully priced in.
### Summary
Chinese authorities have introduced new measures to support investor confidence in the country's stock market, including cuts in trading costs and relaxed rules on share buybacks. This comes after recent declines in both the stock and bond markets and concerns over China's economic outlook. There are also growing concerns about youth unemployment and issues in the property market, which could potentially lead to broader economic problems.
### Facts
- 📉 The China Securities Regulatory Commission has announced measures to make trading easier and boost investor confidence.
- 💰 These measures include reducing handling fees charged by brokers and relaxing rules on share buybacks.
- ⏰ The regulator is also considering extending trading hours and reducing stamp duty on share trades.
- 📉 Chinese stock markets have experienced declines, with the CSI 300 index down nearly 6% in the past two weeks and the Hang Seng index in Hong Kong suffering its biggest weekly fall in two months.
- 📉 The declining investor confidence is linked to China's deteriorating economic outlook, including faltering growth, weakening demand, and rising deflation.
- 🧑🎓 There are increasing concerns about youth unemployment, with many young graduates opting not to work or engaging in short-term roles due to a lack of high-paying job opportunities.
- 🏢 Worries about the property market have also emerged, as several major property developers have defaulted on their debts and there are concerns of contagion to the broader economy and financial sector.
- 🏢 Country Garden, China's largest private housebuilder, reported a sharp fall in sales and missed interest payments on its bonds, raising concerns about the company's viability and the broader impact on the property sector.
- 💡 Analysts suggest that the government may introduce more economic stimulus measures in response to the situation, but there are concerns that the construction sector is in structural decline and could contribute to a slowdown in GDP growth.
### 🌍 Additional Information and Context
- Since August 2021, China's stock market has faced substantial declines due to regulatory crackdowns on several industries, leading to decreased investor confidence.
- China's property market is a significant driver of economic growth, but concerns over excessive debt levels, oversupply, and financial risks have raised concerns about a potential bubble and the stability of the sector.
- The Chinese government has taken steps to address the issues in the property market, including efforts to stimulate activity, but the situation remains uncertain.
- Overall, the combination of economic slowdown, declining investor confidence, youth unemployment, and concerns over the property market poses challenges to China's economic stability and growth prospects.
China's real estate crisis, caused by a crackdown on risky behavior by home builders and a subsequent housing slowdown, is spreading to the broader economy, leading to sinking sales, disappearing jobs, and a decline in consumer confidence, business investment, and stock markets.
China property-market pessimists are overlooking the underlying demand, as evidenced by strong sales by state-backed property developers and rising rents, according to veteran economist Hong Hao of Grow Investment Group.
China's real estate market is experiencing a significant downturn, causing major developers to face massive losses and mounting debts, which is impacting the country's economy and global growth.
Main financial assets discussed:
1. Country Garden (private real estate developer)
2. Shanghai Stock Exchange Composite Index (SSEC)
3. Hang Seng Index (HSI)
4. KraneShares MSCI All China Index ETF (KALL)
Top 3 key points:
1. China's real estate sector is facing significant challenges, with property prices and land prices cooling off and a rise in foreclosures due to affordability concerns and drop in incomes.
2. The jobless rate among the 16-24 age range in China is high, indicating an affordability crisis and potential economic challenges for the country.
3. The performance of Chinese stock indices, including the SSEC and HSI, has been under par in recent years, suggesting potential challenges for the Chinese economy.
Recommended actions:
Based on the information provided, it is recommended to **sell** or **hold** investments in Chinese real estate assets, as the sector is facing significant challenges including affordability concerns and a rise in foreclosures. The performance of Chinese stock indices has also been under par, suggesting potential challenges for the Chinese economy. Investors may consider diversifying their investments beyond China and conducting diligent research to identify other investment opportunities.
China's largest private real estate developer, Country Garden, is in financial trouble, missing bond payments and posting a record loss, signaling further concerns about the country's property sector as housing prices and foreclosures continue to rise, while other economic indicators, such as industrial output and retail sales, fall short of expectations; these developments are raising concerns about the overall health of China's economy and its future growth prospects.
China's hybrid economic model, which combines state planning with market forces, is facing challenges as the country struggles with weak economic indicators, including high youth unemployment and falling prices, and the property market experiences financial distress due to government interventions and market dynamics; policymakers must implement short-term measures to boost market confidence, such as managing property-sector defaults and easing housing investment restrictions, while also undertaking long-term structural reforms to address moral hazards, promote fiscal responsibility, and protect private businesses and foreign investors.
China's stock market is on the verge of a meltdown as major property developers collapse, while Wall Street is booming due to renewed interest in tech stocks, posing a potential threat to the UK as it gets caught in the crossfire.
China's property crisis, led by embattled property giants like Evergrande, is causing devastating consequences for small businesses and suppliers who are owed large sums of money, putting both market confidence and debt repayments at risk. The crisis has affected the entire industry and could worsen if immediate actions are not taken to prevent contagion and spillover fears. The Chinese government is urged to abandon restrictive measures on real estate credit, carry out bankruptcy proceedings for developers with capital-outflow problems, and stop intervening in the market to stabilize home prices. The outlook for Chinese developers is deteriorating, particularly for distressed developers, while state-owned developers have a stable outlook. The Chinese housing market is facing a severe crisis that is worse than Japan's market in the early 1990s, posing challenges in filling the gap in spending left by the collapsing housing market.
Chinese consumer spending has rebounded in certain sectors, but concerns persist over the property market and GDP growth falling below 5%, according to Shehzad Qazi, managing director of China Beige Book.
China's economic slowdown is being caused by a property market downturn, softening demand for exports, and low household spending, which poses risks to financial stability and could lead to deflation and deeper debt problems. Economists are uncertain if the government's current measures, like interest rate cuts, will be enough to boost consumption and meet growth targets. Structural reforms and measures to increase household consumption are needed to address the imbalance in the economy.
The slowdown in China's property market continues despite government measures to revive the economy, with analysts warning that the sentiment among many Chinese is too weak for these moves to be effective.
Chinese stocks surged as the government implemented additional measures to support the property sector, signaling a determination to boost the economy by addressing issues in the struggling housing market.
China's relief measures to support the property sector have spurred a home-buying spree in Beijing and Shanghai, with transaction volumes in both cities increasing significantly, indicating robust housing demand; however, concerns persist that this demand may not be sustained due to other restrictions and a faltering growth outlook.
China is considering further easing measures in the property market and increasing fiscal support for infrastructure investment to boost economic growth in the fourth quarter, as sluggish demand remains a challenge.
China's measures to support the property sector, such as lowering mortgage rates, have limited impact on consumer spending due to the dire economic outlook and lack of longer-term reforms, highlighting the need for resources to be transferred to consumers from other sectors of the economy.
China's property shares are declining and tech shares are underperforming, leading to a slide in the Asian market, while the European market waits for monetary policy decisions from the ECB and the Bank of England.
New home sales in Beijing have increased by 16.9% in the week of September 4-10, indicating that government efforts to revive the property sector are having an impact in the Chinese capital. However, the rebound in sales is not reflected across the rest of China, with sales falling 20% on average nationwide.
China's real estate and construction sectors are struggling, leading to fears of economic stagnation as consumer spending declines and other areas of the economy are not growing fast enough to make up the difference.
China's weak real estate sector and troubled offshore bond market, coupled with its totalitarian government, make long-term investment unattractive and non-profitable, according to Kyle Bass of Hayman Capital.
China's recent policies to stabilize the property sector may not be enough to stimulate real economic growth, although they could generate demand, according to analysts.
China's property sector continues to struggle with deepening falls in new home prices, property investment, and sales in August, despite recent support measures, adding pressure to the country's economy.
Despite prevailing negativity regarding China's economy, alternative high-frequency data points, such as subway ridership and commodity prices, suggest that many parts of the economy are functioning well, although the real estate sector is still struggling.
Economic activity in China appears to improve in August as industrial production and retail sales show growth, however, the real estate sector continues to face challenges with property investment and sales declining, leading Moody's to downgrade its outlook for the sector.
China's housing crisis continues as thousands of building projects are halted or slowed, leading to defaults and restructuring, a loss of confidence in the market, and a decline in sales.
China's economic data for August shows a mixed picture, with retail sales and production on the rise, property investment declining, and the urban jobless rate ticking downward, leading experts to believe that while there may be modest improvements in growth, a strong recovery is still unlikely.
The outlook of U.S. companies on China's markets in the next five years has hit a record low due to factors such as political tensions, tariffs, slow Covid recovery, and issues in the real estate market; however, complete decoupling between the two economies is unlikely.
China's property market is facing a crisis with an overwhelming amount of unsold homes, surpassing the number of people in the country, as the sector continues to slump since the default of China Evergrande group.
Chinese investors are rushing to sell their overseas properties, particularly in Southeast Asia, due to worsening financial conditions and the need for cash to solve domestic issues such as business failures and mortgage loan defaults. Uncertain economic conditions, low confidence in production and consumption, and tightening regulations on property developers in China have contributed to the struggle to offload these investments.
China's property market is in crisis with a surplus of empty apartments, estimated to be enough to accommodate 3 billion people, according to a former official, signaling ongoing challenges for the sector despite official claims of a "resilient" economy.
China's property sector has slumped since 2021, with big-name developers teetering close to default and an abundance of vacant homes that even China's population of 1.4 billion can't fill, according to a former official.
China's urbanization drive is slowing down, which is expected to further impact the struggling property sector that has been plagued by debt problems and declining consumer confidence. Managing the excess housing supply and diversifying the economy away from reliance on the property sector are crucial for a healthier Chinese economy.
President Xi Jinping's efforts to tackle the housing crisis in China face obstacles as multiple property developers, including Evergrande and China Oceanwide, deal with debt restructuring, liquidation, and potential defaults, leading to investor confusion about the government's plan to stabilize the market.
China's flailing real estate sector may take up to 10 years to fix, according to economist Hong Hao, as the sector continues to suffer from a debt crisis and oversupply, while demand is in long-term decline. Beijing officials are grappling with the challenge of reducing reliance on real estate without harming the economy in the short term.
China's central bank vows to provide stronger policy support for the economy and maintain a healthy property market, following the rebound of industrial profits in August.
China's economic outlook, particularly for the real estate sector, is expected to become clearer in the last three months of the year, with potential government support and loosening of restrictions to stabilize the housing market and allow the economy to recover fully by mid-2024. However, economists predict that real estate growth will remain weak and prices may fall gradually, as significant price declines could have adverse social consequences.
The strain from interest rate hikes is starting to impact the real estate market, particularly in Germany and London, as well as the Chinese property sector; corporate debt defaults are increasing globally; banking stress remains a concern, especially regarding smaller banks and their exposure to commercial real estate; and the Bank of Japan's tighter monetary policy could lead to a sharp unwind of investments, potentially impacting global markets.
China's property market blowup, which has led to major developers struggling and low housing sales, may not necessarily result in a financial crisis due to the unique characteristics of China's housing market and Beijing's control over the financial system, but it is expected to cause significant damage to bank balance sheets and potentially lead to widespread financial turbulence if support is not provided to local governments and small lenders.
China's property crisis poses significant challenges for an economy heavily reliant on real estate, although there are some sectors that may benefit from the situation.
The World Bank has lowered its GDP growth estimate for China in 2024 due to elevated debt and weakness in the property sector, which has been hit by a downturn leading to unfinished homes and a decline in housing prices. While the impact on the overall economy may be limited, smaller regional banks and local government financing vehicles (LGFVs) are at higher risk. Policymakers have signaled a shift in their approach to the property market, and the long-term prospects of the sector may be hindered by demographic factors and a high rate of home ownership. However, experts believe that real estate will remain an important industry in the future.
