Hong Kong market slips in late trading after clutch of stocks plunges, denting trader optimism
- China property developer Jiayuan collapses by 81 per cent in Hong Kong
- Hong Kong, mainland markets helped earlier in day by China’s central bank step to inject more cash into financial system
The Hang Seng Index ended down slightly Thursday, after a hair-raising afternoon trading session that saw a clutch of stocks plunge by as much as 81 per cent.
The Hang Seng closed down 0.5 per cent, or 146.47 points, to 26,755.63. It got an early boost from the latest announcement by China’s central bank that it was shovelling more cash into the financial system.
But the bounce on the Hang Seng turned into a slide in late trading when the clutch of companies – led by China property developer Jiayuan International Group – began collapsing. They were too small even before the plunge to be part of the Hang Seng, but weighed on larger property shares and the overall index.
Jiayuan plummeted by 81 per cent to HK$2.52. Sinking along with Jiayuan were developer Sunshine 100 China Holdings, internet of things solution provider Rentian Tech and Hongda Financial Holding, whose shares all collapsed by around 70 per cent.
Meanwhile, the Shanghai Composite Index retreated 0.4 per cent, or 10.79 points, to 2,559.64.
The property subindex of the Hang Seng sunk by 2.2 per cent, the most among all sectors, as worries over liquidity situation spread from Jiayuan to the whole sector.
Jiayuan, valued around the 32nd among all Hong Kong-listed developers before the crash, had over HK$26 billion of market capitalisation wiped out over the course of two hours. It was the eighth-most traded stock of the day. It was part of the property subindex.
Some analysts pointed to possible share pledge and cross shareholding practises of the company’s shareholder to secure loans. Others suggested a US$350 million bond debt due to mature today might be the trigger.
“There is worry that they will not be able to repay the bonds, which triggered fears over default,” said Louis Wong Wai-kit, director of Phillip Capital Management.
“[If the company defaults] it may not have money to continue its business. Being a shareholder, you are under risk that the company may go broke,” said Wong.
Jiayuan said in a statement that it had already repaid the debts. “[The company’s] current financial situation is healthy and its business operation is normal,” it said.
A spokeswoman at Sunshine 100 China said the company was “shocked” by the plunge, even though operation remained normal.
“The market is worried about the liquidity situation among mainland Chinese property stocks,” said Kenny Tang Sing-hing, chief executive of China Hong Kong Capital Asset Management.
Many of the developers have taken on massive debts to fuel fast project development and sales, while home prices have stalled across China as government cooling measures took effect.
Jiayuan’s sales revenue declined 31 per cent to 2.1 billion yuan in last year from the year before, the company said in a filing to the stock exchange earlier this month.
Longfor Properties, a larger rival of Jiayuan, also declined by 9 per cent to HK$22.45, after a major investor announced on Wednesday a plan to sell 150 million shares at HK$22.7 apiece. China Overseas Land and Investment went down 3.2 per cent and Sunac China shed 2.7 per cent.
Before the market was weighed down, China’s move to inject cash into the financial system had buoyed stocks.
The People’s Bank of China unleashed another 380 billion yuan (US$56 billion) into markets on Thursday through open market operations, a day after it injected a record 560 billion yuan. The central bank has added over 1.1 trillion yuan of liquidity this week.
Separately, deputy governor Pan Gongsheng said during a forum that the central bank is looking into launching bond ETF products and promoting renminbi derivatives. The step would further open up China’s 80 trillion yuan (US$12 billion) bond market to foreign investors.
Hang Seng Index heavyweight and gaming giant Tencent Holdings surged as much as 2 per cent before falling back and closing flat. The company launched its first new mobile game of this year on Wednesday.
Shares of the company took a beating last year after China tightened approvals of game licenses, but have rebounded by a third since an October low as restrictions appeared to have eased.
