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Difficult times ahead for property stocks in China
04 Sep 2021 (455 views)

I saw this news from Bloomberg.

Bloomberg:

There’s never a good time to be a heavily indebted Chinese property developer, but now is certainly worse than most.

Chinese President Xi Jinping’s push for “common prosperity” has led to greater scrutiny of billionaires, debt and high home prices — none of which augurs well for the real estate industry. Indeed, economists at Nomura, Japan’s largest brokerage, have argued that Xi’s political priorities have laid the groundwork for China’s battle with property to potentially become the country’s “Volcker Moment.”

That phrase refers to the U.S. Federal Reserve’s decision under former Chairman Paul Volcker to quickly raise interest rates in the late 1970s. Those actions caused a jump in unemployment but also tamed inflation, setting the stage for an economic boom over the next two decades.

If policy makers in Beijing have in fact steeled themselves to tame home prices, the short-term pain could be tremendous, even if the longer-term implications are rosy.

For a sense of what’s at stake, look no further than the tumult unfolding around Evergrande, the world’s most-indebted real estate company. The firm’s finances have been under strain since late last year as Beijing began barring developers from additional borrowings until they brought their leverage down to within regulatory requirements.

In response, Evergrande has been scrambling to sell assets so that it can secure the cash needed to pay off its debts. Whether it can do that quickly enough came into focus this week with the release of its first-half financials.

TKL comment
I have decided to sell all of my property stock in China, notable Country Gardens. I expect this sector to go through a difficult time. 

Note - I am not giving investment advice. I am sharing my thoughts on my own investment portfolio.
 


Difficult times ahead for property stocks in China
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I saw this news from Bloomberg.

Bloomberg:

There’s never a good time to be a heavily indebted Chinese property developer, but now is certainly worse than most.

Chinese President Xi Jinping’s push for “common prosperity” has led to greater scrutiny of billionaires, debt and high home prices — none of which augurs well for the real estate industry. Indeed, economists at Nomura, Japan’s largest brokerage, have argued that Xi’s political priorities have laid the groundwork for China’s battle with property to potentially become the country’s “Volcker Moment.”

That phrase refers to the U.S. Federal Reserve’s decision under former Chairman Paul Volcker to quickly raise interest rates in the late 1970s. Those actions caused a jump in unemployment but also tamed inflation, setting the stage for an economic boom over the next two decades.

If policy makers in Beijing have in fact steeled themselves to tame home prices, the short-term pain could be tremendous, even if the longer-term implications are rosy.

For a sense of what’s at stake, look no further than the tumult unfolding around Evergrande, the world’s most-indebted real estate company. The firm’s finances have been under strain since late last year as Beijing began barring developers from additional borrowings until they brought their leverage down to within regulatory requirements.

In response, Evergrande has been scrambling to sell assets so that it can secure the cash needed to pay off its debts. Whether it can do that quickly enough came into focus this week with the release of its first-half financials.

TKL comment
I have decided to sell all of my property stock in China, notable Country Gardens. I expect this sector to go through a difficult time. 

Note - I am not giving investment advice. I am sharing my thoughts on my own investment portfolio.