Short interest for China Const Bank gives investors a sense of the degree to which investors are betting on the decline of China Const Bank's stock. Short interest data is updated every two weeks.

China Const Bank Stock (OTC:CICHY), Short Interest Report

CHINA CONSTRUCTION B

As one of the big four banks, China Construction Bank is headquartered in Beijing. The bank went public on the Hong Kong Stock Exchange in 2005 and listed shares in mainland China in 2007. Central Huijin Investment, China's sovereign wealth fund manager is the largest shareholder with a 57% share. Fullerton Financial Holdings (a subsidiary of Temasek) is the company's second-largest shareholder with a 4.99% stake. CCB strives to provide customers with comprehensive financial services. Corporate banking, retail banking, and wholesale banking business segments accounted for 36%, 57%, and 7% of profit before tax, respectively, in 2022.

Asia

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BABA

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NIKE

Hong Kong stocks rallied Friday as the week closed out higher for consumer stocks and EV makers which investors hope will be the beneficiary of a forthcoming government stimulus.  

The Hang Seng Index ended the day 2.1% higher at 17,398.73 while China’s CSI 300 Index rose 1.4% to 3,562.39.

Strong Consumer Turnout Drives Hong Kong Stocks Higher Friday As China&#39;s Former Premier Li Keqiang Dies At 68

Earnings

Economics

Insurance

CILJF

Thursday, two of China’s largest financial institutions released third quarter earnings.

What Do Q3 Earnings of Two Of The Largest Chinese Financial Firms Tell Us About China&#39;s Economy Right Now?

Short Ideas

Tech

Trading Ideas

AIAGY

BYDDF

BYDDY

PNAGY

Total short-selling activity in Hong Kong Monday stood at HK$14.3 billion ($1.8 billion), or 22.9% of all shares traded.

Short-selling can cause a rout in stocks but it can also make for sharp upswings when speculators are forced to cover their short positions by buying the stock back in the event of a sudden (a “short-squeeze”).

Monday&#39;s Top 3 Short Trades In Hong Kong - And What Traders Say About The Squeeze

CHINA CONSTR BK UNSP/ADR by China Construction Bank Corp.

China Construction Bank Corp

Hong Kong stocks rallied Friday as the week closed out higher for consumer stocks and EV makers which investors hope will be the beneficiary of a forthcoming government stimulus. &nbsp;
The Hang Seng Index ended the day 2.1% higher at 17,398.73 while China&rsquo;s CSI 300 Index rose 1.4% to 3,562.39.
Financials also closed out mostly higher while property firms were sharply up on hopes that if the government steps in there may be an end in view to the wave of defaults that have besieged corporate bond markets this year.
Short-selling volumes dropped by about a quarter from a day earlier to 17.4% of all transaction volumes on the Hong Kong Stock Exchange.
Reports of successful Single&rsquo;s Day presales promotions for Alibaba Group Holding (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/baba#NYSE">BABA</a>) and JD.com Inc (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/jd#NASDAQ">JD</a>) continued to push those stocks higher, which have been heavily beaten-down throughout 2023.
Chinese consumers are currently sitting heavily on cash <a href="https://www.benzinga.com/markets/penny-stocks/23/10/35444172/what-do-q3-earnings-of-two-of-the-largest-chinese-financial-firms-tell-us-about-chinas-econo" style="color:#0563c1">as revealed by substantially higher deposits</a> on China Construction Bank&rsquo;s (OTC: <a class="ticker" href="https://www.benzinga.com/stock/cichy#OTC">CICHY</a>) earnings statement Thursday. As such, retailers are looking to take advantage of the sales opportunity during the country&rsquo;s November sales season. Competitive discounts and a slew of brand-new product offerings this week have seen record sell-out times for Alibaba and JD.com, according to local reports.
Alibaba told the Chinese language media Friday that over 1,300 brands sold about triple the volume of what they did last year in the first hour of its TMall platform sales Tuesday this week. About 700 brands sold over 5x what they did in the same period last year, the company added. Alibaba also said that leading European and American fashion brands, including Nike Inc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/nike#NYSE">NIKE</a>), made over RMB100 million ($13.7 million) in sales each within that hour.
Among other consumer names, Tencent Holdings Limited (OTC: <a class="ticker" href="https://www.benzinga.com/stock/tcehy#OTC">TCEHY</a>) got a boost after Hong Kong&rsquo;s second-largest IPO this year, for J&amp;T Global Express Limited, went live. Tencent is the lead cornerstone investor in the IPO with over 10% of the share allotment. The IPO was oversubscribed by about one and a half times.
Short-selling among consumer names dipped to less than 10% of daily turnover according to traders, with Alibaba seeing just 9.9% of its trading volume represented in short plays, Meituan (OTC: <a class="ticker" href="https://www.benzinga.com/stock/mpngy#OTC">MPNGY</a>) at 6.9% short turnover ratio and Tencent at just 4.5%.
After a 20% decline following an earnings disappointment Thursday, Li Ning repurchased HK$205 million ($26.3 million) of its stock Friday, or around 0.35% of its entire market capitalization, for between HK$23.5 and HK$25.04 a share, helping the stock rise over 3% by day&rsquo;s end.
Alibaba, Meituan and JD.com Inc all finished the day 3% higher, while J&amp;T Global Express held on to its HK$12 offering price by the end of the day&rsquo;s trading.
EV names were also sharply higher, with Nio Inc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/nio#NYSE">NIO</a>) closing up 2.4%, XPeng Inc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/xpev#NYSE">XPEV</a>) 5% higher and Li Auto Inc (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/li#NASDAQ">LI</a>) 3.8% stronger on the day after news that Tesla Inc (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/tsla#NASDAQ">TSLA</a>) scrapped a discount on its bestselling Model Y EV on the Chinese mainland.
Other active heavyweight stocks on the Hong Kong Stock Exchange included financials China Construction Bank, AIA Group (OTC: <a class="ticker" href="https://www.benzinga.com/stock/aagiy#OTC">AAGIY</a>) and Ping An Insurance Group (OTC: <a class="ticker" href="https://www.benzinga.com/stock/pngay#OTC">PNGAY</a>), which all rose despite short-sellers still targeting the stocks heavily. Short turnover for each of the three companies was between 18%-37% with the highest for AIA, indicating investors are still bearish about the health of Chinese financial firms.
Pharma names did the best of all sectors on hopes that a government stimulus would target the sector heavily, with Hansoh Pharma (OTC: <a class="ticker" href="https://www.benzinga.com/stock/hnspf#OTC">HNSPF</a>) 12% higher, Sino Boipharmaceuticals Limited (OTC: <a class="ticker" href="https://www.benzinga.com/stock/sbmff#OTC">SBMFF</a>) up 10% and Wuxi Biologics (OTC: <a class="ticker" href="https://www.benzinga.com/stock/wxxwy#OTC">WXXWY</a>) rising 7.3% on the day.
In other news, Li Keqiang, China&rsquo;s former premier, died suddenly of a heart attack shortly after midnight Friday at 68 years old. Li was one of China&rsquo;s most popular leaders in history, mostly presiding over a period of 8%+ annual economic growth for the world&rsquo;s second largest economy and hailing in an era of what is viewed as more liberal capitalist style politics on the mainland.

Strong Consumer Turnout Drives Hong Kong Stocks Higher Friday As China's Former Premier Li Keqiang Dies At 68

Thursday, two of China&rsquo;s largest financial institutions released third quarter earnings.
As for most financial firms, the earnings statements of China Construction Bank (OTC: <a class="ticker" href="https://www.benzinga.com/stock/cichy#OTC">CICHY</a>) and China Life Insurance (OTC: <a class="ticker" href="https://www.benzinga.com/stock/ciljf#OTC">CILJF</a>) offer useful insight into what&rsquo; going on in the world&rsquo;s second-largest economy, and what investors can expect next.
China Construction Bank <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2023/1026/2023102600399.pdf" style="color:#0563c1">said</a> that for the third quarter this year it earned a net profit of 88.145 billion RMB ($12 billion) which was a 3% improvement over the year before. That beat analysts&rsquo; expectations by a wide mark, who were forecasting a 21% drop.
Analysts weren&rsquo;t just looking for profit numbers this quarter, however &ndash; much more pertinent on the balance sheets of banks is the ratio of non-performing loans to assets. Those were pretty much flat at 1.37%. The total amount of NPLs on CCB&rsquo;s balance sheet was 323 billion RMB however &ndash; about 9% higher than the same period last year.
Balancing that out was an 11.5% increase in customer deposits in the period, to 2.85 trillion RMB.
Overall CCB&rsquo;s financials were more robust than expected, illustrating how bearish analysts have become lately on China&rsquo;s economy. At the same time, the massive increase in customer deposits over the past year shows that it&rsquo;s not just professional investors who are feeling skittish about the economy, but everyday savers too.
By contrast to CCB, for China Life, the company&rsquo;s earnings couldn&rsquo;t have gotten much worse. For the January-to-September period, China Life <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2023/1026/2023102600624.pdf" style="color:#0563c1">said</a> it made a net profit of 16.2 billion RMB vs. 31 billion RMB in the same period last year, marking a 48% reduction in earnings-per-share. Return-on-equity, a measure of how well a company is putting its capital to use, was altogether wiped out in the same period.
China Life attributed most of the declines in its earnings to a flagging stock market, which it said put pressure on its investment income.
&ldquo;In the first three quarters of 2023, as the momentum of economic upturn in China continued to consolidate, the recovery of the life insurance industry has sustained, but there were still uncertainties and complexities,&rdquo; said China Life&rsquo;s Management.
Looking into China Life&rsquo;s core business more closely reveals that there is no abating in demand for insurance products among Chinese consumers, however: the value of new businesses brought in actually increased by around 14%, as did pretty much all the company&rsquo;s revenue from premiums apart from health insurance, where there was a minor decline in the aftermath of Covid.
<h3>The Lowdown</h3>
What both companies&rsquo; earnings statements show is first, how robust the underlying conditions for China&rsquo;s economy are, and second, how much effort is required to stimulate it back into something resembling market growth.
While savings and purchases are continuing along with broadly better-than-expected growth, a downturn in investment back into its own economy is depriving Chinese consumers of the kind of gains they have been accustomed to seeing in their portfolios the past decade or so. That means that valuations of companies are getting mauled, which in turn, is destroying overall investment growth.
So far, the Chinese government has launched a range of share buy-back funds and is also <a href="https://www.caixinglobal.com/2023-10-12/in-depth-chinese-local-governments-latest-effort-to-tackle-hidden-debt-102116197.html" style="color:#0563c1">supporting</a> a $56 billion regional government bond program to cover hidden debt lodged in the country&rsquo;s flagging property markets, according to insiders who talked to China business daily Caixin.
Analysts now expect a continuation of intervention by the Chinese government in its own share and property markets until things improve, and the earnings of two of China&rsquo;s biggest financial firms shows that&rsquo;s probably right.

What Do Q3 Earnings of Two Of The Largest Chinese Financial Firms Tell Us About China's Economy Right Now?

Total short-selling activity in Hong Kong Monday stood at HK$14.3 billion ($1.8 billion), or 22.9% of all shares traded.
Short-selling can cause a rout in stocks but it can also make for sharp upswings when speculators are forced to cover their short positions by buying the stock back in the event of a sudden (a &ldquo;short-squeeze&rdquo;).
Here&rsquo;s a look at the top 3 stocks (excluding tracker funds, i.e. companies only) that were being shorted in Hong Kong Monday by total volume of shares traded and a break-down of what traders are saying:
#1 &ndash; China Construction Bank Corporation (OTC: <a class="ticker" href="https://www.benzinga.com/stock/cichy#OTC">CICHY</a>)
Summary: CCB was in top spot among Hong Kong companies being targeted by short-sellers with HK$666.4 million, or 37.4% of its volume representing short positions being taken. The company&rsquo;s stock price was 0.22% lower on the day.
Reason: Traders were bearish on the stock after reports in the Chinese-language press that non-performing loans are sharply on the rise. Data from the Yingdeng Center <a href="https://finance.caixin.com/2023-10-15/102117070.html" style="color:#0563c1">showed</a> that for the third quarter of 2023, delinquent loans hit 39.12 billion RMB ($5.4 billion), its highest on record for a single quarter.
Squeeze View: Banks did well last week <a href="https://www.benzinga.com/markets/penny-stocks/23/10/35224132/hong-kong-stocks-rally-as-sovereign-bank-buy-up-overshadows-climb-in-negative-mortgages" style="color:#0563c1">as China&rsquo;s sovereign fund snapped up shares in the country&rsquo;s four leading banks</a>, including CCB. The fund said that it would continue with share purchases in these banks over the next six months. China&rsquo;s government is also showing willingness to incentivize lenders to increase auto-loans to consumers, which could be a plus for banks.
#2 &ndash; AIA Group Ltd (OTC: <a class="ticker" href="https://www.benzinga.com/stock/aiagy#OTC">AIAGY</a>)
Summary: Insurer AIA was second on the list of the top three short-seller targets, with HK$437.05 million or 33.5% of the company&rsquo;s shares sold short. AIA shares ended the day&rsquo;s trading flat.
Reason: Insurance firms are on a sector watchlist as investors fear these firms may have exposure to real estate debts that are as yet still unknown after a Bloomberg report Monday morning concerning Ping An Insurance Co of China Limited&rsquo;s (OTC: PNAGY) hidden balance sheet debt. AIA and Ping An both <a href="https://www.scmp.com/business/china-business/article/3217836/aia-ping-pour-billions-chinese-commercial-property-insurers-seek-long-term-stable-yields" style="color:#0563c1">poured</a> billions into commercial property in China earlier this year too.
Squeeze View: AIA has been one of the largest buyers of its own stock this month, believing the shares to be priced too cheaply.
#3 &ndash; BYD Company Limited (OTC: <a class="ticker" href="https://www.benzinga.com/stock/byddf#OTC">BYDDF</a>) (OTC: <a class="ticker" href="https://www.benzinga.com/stock/byddy#OTC">BYDDY</a>)
Summary: EV maker BYD was in third place among the top Hong Kong-listed short-sold equities as sellers targeted HK$322.6 million, or 24.4% of the company&rsquo;s daily turnover for short positions. BYD shares ended down 1.2% on the day.
Reason: Strong sales for Huawei Technology&rsquo;s AITO M7 have led Li Auto Inc (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/li#NASDAQ">LI</a>) to cut prices <a href="http://www.aastocks.com/en/stocks/news/aafn-con/now.1300070/latest-news" style="color:#0563c1">according</a> to Chinese language newswire Cailian. That report sparked fears of lower margins for BYD in the ongoing EV price war. Recent selling pressure from shareholder Berkshire Hathway Inc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/brk-a#NYSE">BRK-A</a>), which has been disposing of a chunk of its stake in BYD has incentivized short-sellers too. Added to this, there are concerns about the strength of the Chinese consumer sector which would affect the company&rsquo;s sales outlook and about the upcoming earnings for rival Tesla Inc (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/tsla#NASDAQ">TSLA</a>)
Squeeze View: BYD is aggressively improving both sales and margins despite a price war for EVs. The company is valued at a fraction of the earnings of Hong Kong-listed rivals XPeng Inc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/xpev#NYSE">XPEV</a>), Nio Inc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/nio#NYSE">NIO</a>) and Li Auto, and is in a stronger selling position globally among both luxury and cheap vehicle sales than any of these brands, especially Huawei. BYD is beating Tesla on total sales volume worldwide this year.

BRK-A

Monday's Top 3 Short Trades In Hong Kong - And What Traders Say About The Squeeze

Shares of bank stocks lifted Hong Kong markets Thursday as China&rsquo;s sovereign fund went on a bank buying spree.
State-owned fund Central Huijin Investment Ltd. snapped up $65.7 million in Bank of China Ltd. (OTC: <a class="ticker" href="https://www.benzinga.com/stock/bachy#OTC">BACHY</a>), China Construction Bank Corp (OTC: <a class="ticker" href="https://www.benzinga.com/stock/cichy#OTC">CICHY</a>), Agricultural Bank of China Ltd. (OTC: <a class="ticker" href="https://www.benzinga.com/stock/acgbf#OTC">ACGBF</a>) and Industrial &amp; Commercial Bank of China Ltd. (OTC: <a class="ticker" href="https://www.benzinga.com/stock/idcby#OTC">IDCBY</a>). The fund said that it would continue with the purchases over the next 6 months, although declined to specify to what extent.
Huijin raised its stake in each bank by ten basis points. The investment fund now owns 64.03% of Bank of China, 40.04% of Agricultural Bank of China, 57.12% of China Construction Bank and 34.72% of ICBC, according to Caixin. All the four banks were up between 4-5% in Hong Kong trading.
<a href="https://www.benzinga.com/markets/penny-stocks/23/10/35199032/these-6-chinese-stocks-are-paying-a-dividend-of-over-10-right-now" style="color:#0563c1">With Chinese dividend yields currently near historic highs</a>, share purchases of stocks by DChinese state funds are expected to be highly profitable over the medium term, according to the region&rsquo;s investment managers. &nbsp;
More measures are being taken by Beijing to lift flagging confidence in the Chinese mainland. The Chinese government is now expected to raise the deficit as it puts in 1 trillion RMB ($137 billion) to shore up the local economy, although some analysts say this won&rsquo;t be enough.
Property developer stocks were sharply down on more gloomy data from the home market in Hong Kong. (<a href="https://www.benzinga.com/markets/penny-stocks/23/10/35128718/is-there-a-real-estate-bubble-in-hong-kong-thats-about-to-burst" style="color:#0563c1">See this recent article on the Hong Kong housing bubble</a> at Benzinga for more.)
Hong Kong negative equity mortgages <a href="http://www.aastocks.com/en/stocks/news/aafn-news/NOW.1299308/3" style="color:#0563c1">may</a> be about to hit a 19-year high after succumbing to a 10% drop in home prices this year, according to new data. With expectations for another 10% fall in home prices on the island, that means that over 5% of all homes will enter negative equity territory. Negative equity mortgages are where the total sum of the mortgage held exceeds the value of the property.
Country Garden Holdings Company Limited (OTC: <a class="ticker" href="https://www.benzinga.com/stock/ctryf#OTC">CTRYF</a>) was down 1.3% while Sunac China Holdings Limited (OTC: SNCNQ) fell 0.95%. China Evergrande Group (OTC: <a class="ticker" href="https://www.benzinga.com/stock/evgrf#OTC">EVGRF</a>) plunged 9% by the end of the day&rsquo;s trading.
EV names fared better on sentiment that bailouts would add to increased purchases for automobiles and recovering deliveries. NIO Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/nio#NYSE">NIO</a>) was up 1.1%, XPeng Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/xpev#NYSE">XPEV</a>) gained 0.4%, Li Auto Inc. (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/li#NASDAQ">LI</a>) rose 1.6% and BYD Company Limited (OTC: <a class="ticker" href="https://www.benzinga.com/stock/byddy#OTC">BYDDY</a>) jumped 3.1%
A <a href="https://asia.nikkei.com/Business/Markets/China-s-appetite-for-U.S.-IPOs-shows-little-sign-of-roaring-back?utm_campaign=GL_asia_daily&amp;utm_medium=email&amp;utm_source=NA_newsletter&amp;utm_content=article_link" style="color:#0563c1">report</a> by Nikkei said that Chinese companies are gradually coming back to list on US exchanges, although at a much slower pace that in 2021. Year-to-date, 17 Chinese companies have debuted on US exchanges, raising $405 million vs. 14 Chinese firms for the whole of 2022 which raised $468 million. That&rsquo;s still far off the $12.6 billion raised by 34 Chinese companies in 2021.
The report said that the Chinese companies that went public in the US between 2018 and 2021 have so far showed investors a -65% return from offer vs. just -16% for returns on non-Chinese IPOs in the US. Of the Chinese IPOs that have gone public this year, only one, Hesai Group (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/hsi#NASDAQ">HSI</a>) has raised more than $50 million and that is currently trading at half the value it was in its February debut.
The report added that tighter accounting regulations for companies wanting to list stateside, by both Chinese and American authorities, as well as political tensions between the two countries were hampering a strong return to US markets for new China listings. &nbsp;
The report cited Alibaba Group Holding Ltd (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/baba#NYSE">BABA</a>) as an example of the sort of stock that has fallen out of favor among investors in recent years due to these extenuating circumstances.
Alibaba rose in value in Hong Kong along with other big consumer names JD.com, Inc. (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/jd#NASDAQ">JD</a>) and Tencent Holdings Ltd (OTC: <a class="ticker" href="https://www.benzinga.com/stock/tcehy#OTC">TCEHY</a>) on the market&rsquo;s broader bullish bailout sentiment.
The Hang Seng Index rose 1.9% to 18,283.21 while the CSI 300 finished the day 1% higher at 3,702.38.

Real Estate

ACGBF

BACHY

CTRYF

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IDCBY

Hong Kong Stocks Rally As Sovereign Bank Buy-Up Overshadows Climb In Negative Mortgages

Chinese real estate developers are having some of their worst 12-month periods on record this year, defaulting on billions of debt as they face the new reality of much slower home sales in mainland China.
China&rsquo;s non-financial debt-to-GDP that comprises in large part retail borrowing on properties has surged since the country&rsquo;s boom days, from 132% in 2007 to 285% this year. Property comprises around a third of China&rsquo;s GDP and around 65% of all household assets in China.
So a dwindling real estate market has put pressure on the country&rsquo;s growth, where the World Bank recently cut its forecast from 4.8% to just 4.4% in 2024.
<h3>Plunging Home Prices, Empty Office Space</h3>
In Hong Kong, the situation is potentially even more precarious than it is in neighboring China. The number of people applying for greater than 80% mortgages in Hong Kong has risen sharply this year by over a third, even as properties are going for massive discounts to what they did in prior years&rsquo; sales. &nbsp;
Property prices in the world&rsquo;s least affordable housing market plunged 16% in 2022 and have been dropping further throughout this year. Residential housing prices fell a further 10% in the first half of 2023, while larger apartments over 1,700 square feet in size dropped as much as 22% in value according to <a href="https://www.rvd.gov.hk/doc/tc/hkpr23/HKPR2023%20Full%20Book_TC.pdf" style="color:#0563c1">data</a> from Ratings &amp; Valuation Department.
Sales volumes are still well over 40% below what they were 18 months ago, according to the department, and in some cases up to 70% lower than before.
Despite these declines, the island still remains the world&rsquo;s least affordable to buy or rent property in, according to a recent <a href="http://www.demographia.com/dhi.pdf" style="color:#0563c1">survey</a> by Demographia. That suggests that unless the economy rebounds sharply, property prices have further to fall.
Among commercial real estate developers, headwinds appear even stronger still: vacancy rates for office rentals are hitting all-time highs of 16%, with rents off 5% so far in 2023.
The Midland Price Index, a volume weighted <a href="https://www.midland.com.hk/en/market-insight" style="color:#0563c1">index</a> of the average prices of Hong Kong properties compiled by Midland Realty Limited, has been steadily declining throughout the year. In October, it is 2.2% lower than the month before, while Midland&rsquo;s Confidence Index for the property market also hit a new low this month for 2023.
The lacking demand for office space on the island this week prompted the Hong Kong government to pause on its commercial real estate auctions, which typically provides the local government with funds for expansion.
<h3>Developer Woes Point To Bubble Bursting</h3>
All of this raises the possibility of there being a property bubble in Hong Kong that&rsquo;s soon about to burst. Part of the problem, according to Knight Frank Limited, a property agent, is the huge amount of debt that Hong Kong real estate purchasers are assuming when they buy. That&rsquo;s not likely to help a decline that won&rsquo;t seem to abate.
&ldquo;Under the current market headwinds, sell-offs are set to endure amid weakening purchasing power,&rdquo; wrote analysts at Knight Frank in a recent <a href="https://content.knightfrank.com/research/676/documents/en/hong-kong-monthly-august-2023-10503.pdf" style="color:#0563c1">note</a>.
Hong Kong&rsquo;s biggest listed real estate developers are down sharply on the year as rising defaults, tighter credit conditions and weaker-than-expected economic prospects in China maul their financial statements.
Country Garden Holdings Limited (OTC: <a class="ticker" href="https://www.benzinga.com/stock/ctryy#OTC">CTRYY</a>) is off 67% this year, while China Evergrande Group (OTC: <a class="ticker" href="https://www.benzinga.com/stock/egrnf#OTC">EGRNF</a>) is 80% lower, returning from a trading suspension in August after 17 months due to legal and financial woes.
The contagion has rattled local banks, with China Construction Bank Corporation (OTC: <a class="ticker" href="https://www.benzinga.com/stock/cichy#OTC">CICHY</a>) 11% lower year-to-date and Bank of China Limited (OTC: BACHY) 5% weaker over the same period. Local lender HSBC Holdings plc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/hsbc#NYSE">HSBC</a>) is higher by 27% for the year as a result of undertaking billions in stock repurchases but is still trading 6% lower than it was 5 years ago.
<h3>Market Intervention Hazards</h3>
The increasingly troubled sector has brought about a sharp sell-off in all Hong Kong stocks this year, not just in developer stocks and banks, as the unknown extent of defaults continue to weigh on investors&rsquo; minds. Year-to-date, the Hang Seng Index is down over 15%.
That has caused some to speculating that the Chinese government&nbsp;<a href="https://www.benzinga.com/markets/penny-stocks/23/10/35067690/china-evergrande-shares-soar-on-trading-resumption-in-hong-kong-sparking-bailout-speculation" style="color:#0563c1" target="_blank">will step in with a bail-out for property developers</a>, similar to the way the US government bailed out automakers such as&nbsp;Ford Motor Co (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/f#NYSE">F</a>)&nbsp;and&nbsp;General Motors Co (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/gm#NYSE">GM</a>)&nbsp;as well as giant financial institutions&nbsp;Morgan Stanley (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/ms#NYSE">MS</a>),&nbsp;The Goldman Sachs Group Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/gs#NYSE">GS</a>),&nbsp;Bank of America Corp. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/bac#NYSE">BAC</a>)&nbsp;and&nbsp;JP Morgan Chase &amp; Co (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/jpm#NYSE">JPM</a>)&nbsp;in the 2008 subprime crisis.
Hong Kong&rsquo;s local government has already tried to work in a range of stimulus policies to revive its beleaguered property market. These include everything from introducing tax credits for buyers to tightening up available supply and even <a href="https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3236780/30-companies-pledge-invest-hk30-billion-hong-kong-helping-spur-citys-rise-it-hub" style="color:#0563c1">inducing</a> Chinese companies to invest billions of dollars in an IT Hub on a patch of agrarian farmland that lies between Hong Kong and China in a zone known as the New Territories.
But in China&rsquo;s complex economy, it&rsquo;s not as easy as just pumping in money, the more so in Hong Kong, which has an international component to its real estate scene, maintain market watchers. Market intervention tactics by local government, while stabilizing things a bit, ultimately only made matters messier last year in neighboring China.
The extent of China&rsquo;s overblown real estate prices was muddied by financing from local government financing vehicles (LGFVs), a way for banks and governments to game the real estate market and other asset prices.
LGFVs accounted for over half of land purchases in 2022 vs. just 33% the year before and 17% in 2021, according to data from Rhodium Group. That created a false sense of demand, ultimately crashing prices in areas faster than they would have otherwise fallen.
Rhodium says the LGFV purchasing interventions only made matters worse as government-subsidized property buyers came to form a bedrock of artificial value below much of China&rsquo;s land values in 2022.
Ultimately, these interventions caught up with developers when the music stopped in 2022 and early this year, <a href="https://www.benzinga.com/markets/penny-stocks/23/09/34912174/china-evergrande-debt-default-hits-hong-kong-developers-with-doozy-while-chinese-big-tech-ho" style="color:#0563c1">resulting in huge debt defaults such as Evergrande&rsquo;s missed repayments of $30 billion in offshore bonds</a>. China&rsquo;s Ministry of Finance eventually issued a notice for local governments to stop intervening in their property markets using LGFVs.
Further, government stimulus only seems to be showing up how weak the Hong Kong property market actually is. This month, Hong Kong&rsquo;s local government is set to auction off <a href="https://www.scmp.com/business/article/3236806/hong-kong-government-sell-only-1-plot-quarter-putting-revenue-target-us108-billion-land-sale-out?utm_source=cm&amp;utm_medium=txn&amp;utm_campaign=enlz-NOT-Follow&amp;utm_content=20231005_daily5&amp;d=e342e512-a5fc-4414-a8dc-effce3b5e5b2" style="color:#0563c1">just one</a> property, meaning it will end up meeting a maximum of 20% of its targeted auction revenue for the year.
The recent auctions provide a guage of the extent of discounts local developers are demanding to develop new land in Hong Kong.
Sun Hung Kai Properties Ltd. (OTC: <a class="ticker" href="https://www.benzinga.com/stock/suhjy#OTC">SUHJY</a>) recently <a href="https://www.bloomberg.com/news/articles/2023-10-05/hong-kong-to-pause-selling-commercial-land-as-market-falters?embedded-checkout=true" style="color:#0563c1">won</a> a HK$20 billion Kowloon property for just HK$4.6 billion at a recent auction while consortium of property developers led by Sino Land Company Limited (OTC: <a class="ticker" href="https://www.benzinga.com/stock/snlay#OTC">SNLAY</a>) last month won another auction for a property in Kai Tak for a 10% discount, paying just HK$5.3 billion for over 100,000 sq ft of prime Hong Kong development space.