China’s Deepening Housing Problems Spook Investors
Stocks in Hong Kong and mainland China drop after developer Country Garden flags more debt problems
3 min
China’s latest property crisis is threatening to spill over into the broader economy, worrying investors and causing a broad market selloff.
Chinese stocks fell in Hong Kong and mainland China on Monday, with real-estate developers, electric-vehicle manufacturers and other companies in economically sensitive sectors declining the most. The Hang Seng Index, which is loaded with Chinese companies, dropped 1.6%, taking its year-to-date loss to 5.1%. China’s CSI 300 of large-cap stocks fell 0.73%, and is also in the red for 2023.
The financial struggles of Country Garden Holdings, China’s top surviving privately run developer, have been front-and-centre since it missed interest payments on two U.S. dollar bonds a week ago. The property giant said over the weekend that trading in 11 of its yuan-denominated domestic bonds has been suspended, and that it intends to discuss repayment plans with investors. Country Garden’s Hong Kong-listed shares, which had been relegated to penny-stock status last week, fell another 18%on Monday.
China’s property sector has gone from being a major contributor to the country’s overall growth to a drag on its economy. New home sales increased in the first few months of 2023, providing a glimmer of hope that the worst of the housing downturn was over. The market turned in April, and nationwide sales at China’s top developers have slumped since. Country Garden’s latest problems are likely to turn off potential home buyers, further delaying a housing recovery.
Data released last week showed that China was slipping into deflation. Households, which have racked up high levels of savings, are also borrowing less.
Chinese banks extended the equivalent of $47.8 billion in new loans in July, down nearly half from the same month a year ago. It was also the lowest monthly total in more than a decade, according to data provider Wind. The July figures reflected slightly higher corporate lending and a drop in lending to households.
The loan data was “a big letdown,” as it reflected a lack of demand for borrowing, said May Ling Wee, a Chinese equities portfolio manager at Janus Henderson Investors. “Animal spirits are very low in China, and the government may need to do some pump-priming,” said Wee.
China’s economic troubles are also weighing on its currency. The offshore yuan depreciated past 7.28 to the U.S. dollar on Monday, and is close to its weakest level this year.
The country is scheduled to release a barrage of economic data on Tuesday, including monthly updates for real-estate investment, factory output and retail sales.
Problems are also cropping up in other financial-asset classes in China. Three publicly listed companies said in recent days that they didn’t receive payments they were promised on wealth-management products sold by Zhongrong International Trust, which is part of Zhongzhi Enterprise Group, a large domestic Chinese conglomerate. The missed payments are making investors worried about China’s sprawling trust industry, which has been a source of funding for property developers in the past.
Country Garden admitted to having liquidity problems last week and said it expects to post a big first-half loss. A default by the 31-year-old developer could have a bigger impact on China’s economy than the slow-motion fallout from China Evergrande Group’s debt crisis that began in 2021, some economists predict.
The company withstood the earlier slump that took down Evergrande and Sunac China, which together with Country Garden had been China’s three biggest privately run developers. “Country Garden’s default would mean a complete reshuffle and reorganisation of China’s real-estate industry,” said Wang Shengzu, global head of asset management at Haitong International.
When Evergrande defaulted on its international debt, China’s economy was in much better shape. The country was enjoying a boom in exports, and global investors widely believed that growth and domestic demand were being suppressed by its strict Covid-19 pandemic restrictions. China has since lifted those restrictions, but its economy has sputtered.
Before the downturn, Country Garden’s annual contracted sales were close to that of Evergrande’s by total value, but the former’s larger presence in China’s less prosperous cities meant it sold more homes at cheaper prices.
Country Garden also has a lot of unfinished property projects, as it was common for Chinese developers to sell partially built homes along with commitments to complete them in a few years. The company’s contract liabilities, a proxy for its unfinished projects, totalled the equivalent of $92.3 billion at the end of 2022, according to Country Garden’s last financial report.
The property sector is at a critical juncture, said Larry Hu, chief China economist at Macquarie Group. Plunging sales are a result of weak consumer confidence, and it is going to be hard for non-state-owned developers to survive in the absence of government help, he added. “Policy is the only game in town,” he said, referring to expectations that Chinese authorities will act to stop the market’s continued slide.
Shares of China’s homegrown electric-vehicle manufacturers dropped Monday, after Elon Musk’s Tesla cut prices in the country for two versions of its top-end Model Y car. Domestic rival BYD declined 6.1% in Hong Kong, while Nio, XPeng and Li Auto fell 2% to 3%.
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
The 1860s Darlinghurst mansion Stoneleigh could become Sydney’s most expensive home ever sold under the hammer when it goes to auction. Clint Ballard is giving buyers a $28 million guide for the heritage-listed mansion on Darley Street, opposite Iona, the former home of Hollywood royalty Baz Luhrmann. Stoneleigh is being offered for sale for the …
Set on one of the city’s last absolute riverfront sites, The Riversdale by Mosaic combines irreplaceable waterfront ownership with one of Brisbane’s most significant residential opportunities.
Nvidia’s earnings will test Wall Street’s confidence in the AI boom.
3 min
Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.
When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.
The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.
But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.
Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.
After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.
“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”
The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.
Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.
In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.
Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.
“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”
Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.
“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.
The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.
The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.
In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.
Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.
Rugged coastal drives and fireside drams define a slow, indulgent journey through Scotland’s far north.
Exclusive eco-conscious lodges are attracting wealthy travellers seeking immersive experiences that prioritise conservation, community and restraint over excess.
