Trouble is bubbling away in China's property market; 7 things you need to know including investors implications

Views 471Nov 2, 2023

Country Garden is in danger of default, rivaling Evergrande. Here are the 7 things you need to know:

Trouble is bubbling away in China's property market; 7 things you need to know including investors implications -1

1. Bondholders said they've not received coupon payments due Monday. That puts Country Garden on course for its 1st public default if it doesn't make the payments within a 30-day grace period.

2. The firm had 1.4 trillion yuan ($199 billion) of total liabilities at the end of 2022. Like most property companies in China, it's suffering from tumbling home sales and restricted cash flow.

3. Country Garden $COUNTRY GARDEN(02007.HK)$ is China's largest private-sector developer by sales; it is building 3,000 housing projects in smaller cities - that's four times more projects than Evergrande. And it employs 70,000 people.

4. When Country Garden $COUNTRY GARDEN(02007.HK)$ didn't pay the coupon payment on Monday to bondholders its shares tumbled. Country Garden shares in HK have now lost ~22% from Friday.

5. Think of the knock-on implications for commodities & mining companies. Remember amid the Evergrande $EVERGRANDE(03333.HK)$ 2021 crisis, after a court ordered Evergrande assets be frozen, many Hong Kong banks declined to lend to Evergrande. S&P and Fitch downgraded its credit rating. The Iron Ore price fell ~40% (May-November). BHP shares $BHP Group Ltd(BHP.AU)$ fell~34% (August-November) before recovering.

6. Beware! A potential $COUNTRY GARDEN(02007.HK)$ default could not only impact China's housing market, and overall sentiment in China, but also confidence in the world's 2nd biggest economy, as well as the global stock market. Considering Apple $Apple(AAPL.US)$ shares fell ~11% (Sept-Oct) amid the Evergrande crisis, the S&P500 $S&P 500 Index(.SPX.US)$ fell about 6%, as like a lot of businesses, Apple makes a chunk of its revenue from China (19% of its revenue from China). Tesla $Tesla(TSLA.US)$ makes 22% of its revenue from China.

7. Consider this, after these US stocks fell, along with the major US indices, and mining companies mentioned, they all rebounded, and their shares hit new all-time highs. So if we see a sharp pullback, consider that many will be using it as an opportunity to buy high-quality businesses, at a cheaper price.