They got the GDP when they built them. Where's the write-off now? China's economic "success" is a paper-thin fraud. It's now catching up with them. t.co/PAzckoVhGt
— Jim Rickards (@JamesGRickards) September 2, 2024
The property crisis in China continues to weigh down the economy
This morning has brought more news on the ongoing Chinese property crash as we note this from a Hong Kong based property developer.
HONG KONG, Sept 2 (Reuters) – Shares of New World Development , a major Hong Kong property developer, plunged 14% after it estimated a net loss of as much as HK$20 billion ($2.6 billion) for the financial year ended in JuneThe shares fell to HK$6.74 in early trading, marking a fresh 21-year low.
For those wondering about context it has been a rough ride for shareholders for some time now.
Its stock has slid some 80% since a peak in mid-2021 just before the debt crisis in China’s property sector began to emerge. It currently has a market cap of around $2.2 billion.
In terms of the situation this is what sent things south.
The company said in a Friday filing it expected a drop of as much as 23% in core operating profit from continuing operations due to a lack of revenue, and it would have fair value and impairment losses of as much as HK$9.5 billion.
In Chinese terms it is brave to blame a weaker currency as we also note another effect of higher US interest-rates.
“Together with the continuous interest rate hikes experienced during the year as well as the depreciation of Renminbi, the group expects to record a (net) loss,” it said.
Oh and in these situations it is always claimed to be a one-off. Until the next one anyway!
The company also said the provisions were one-off non-cash and unrealised items and do not affect the group’s cash flow.
In case you were wondering who this has wrong-footed we get a hint below.
JPMorgan analysts said in a note to clients that New World’s loss “is not as drastic as the headline suggests”, because its pro-forma core net loss may only be HK$2-3 billion if non-cash items like the impairment loss and losses on asset sales are excluded.
As to the overall situation we see that the Chinese problems are spreading to Hong Kong.
While Hong Kong has not seen major defaults on debt by property developers like in mainland China, investors worry about weakening liquidity for the sector due to sluggish residential and commercial property markets.
If we switch to the Financial Times we see the impact on wider share indices.
The broader Hang Seng index declined 1.6 per cent.
Mainland China’s CSI 300 benchmark dropped 1.3 per cent.
Care is needed with too straight a line in cause and effect though because we have seen new equity market highs in Germany recently ( Dax 30) when economic performance has been poor.
Manufacturing
The Chinese response to the decline in the property sector which had previously provided some much of the economic growth seen has been to look to switch to manufacturing. Or rather to emphasise it even more as it was already a strength. As the vehicle sector is a priority you could say turbo-charge it although many of the cars are now electric vehicles or EVs. But over the weekend there was disappointing news on this front.
In August , the manufacturing purchasing managers’ index ( PMI ) was 49.1% , down 0.3 percentage points from the previous month , and the manufacturing industry’s business climate declined slightly. ( National Bureau of Statistics)
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