It was an inauspicious start to 2022 in Hong Kong, where shares fell on the first trading day of the year for the first time since 2019.
Traders cited thin markets and the overhang from Beijing’s tech crackdown. The Hang Seng, you’re reminded, garnered the dubious distinction of worst-performing major benchmark in 2021 (figure below).
The only thing worse than the Hang Seng was the Hang Seng Tech gauge, which Xi managed to cut in half from the highs hit in February.
Speaking of Hong Kong tech, Alibaba kicked off 2022 in “style,” where that means shares fell the most since December 8 (figure below) on worries over the outlook for Chinese ADRs.
Last Tuesday, Alibaba holders converted ADRs into more than 700 million Hong Kong shares worth some HKD$80 billion. According to Bloomberg, a conversion of nearly that many shares in September was followed by a ~13% rout over the ensuing 10 trading days.
The Hang Seng Tech Index fell to start the year. It declined in five of 2021’s final six months.
Meanwhile, Evergrande suspended trading in its (nearly worthless) shares amid local media reports that the group was instructed by the Danzhou government to demolish more than three-dozen “illegal” buildings over the next 10 days. Danzhou is a prefecture-level city in the Hainan province.
Cailian cited a document in reporting that an illegally obtained permit was revoked. Apparently, the buildings weren’t very important from an operational perspective, but as one strategist told Bloomberg Monday, “it will have a big impact on confidence.”
Chinese developers are staring down a Herculean challenge: Between principal payments, coupons, trust products and wages, the sector needs to come up with almost $200 billion this month. That’s according to laborious calculations from Bloomberg. The figure on the left (below, from Goldman) gives you a sense of the hit to growth from the property malaise.
The figure on the right underscores the notion that, as Bloomberg wrote in the linked article, “policy for the property market remains tight.”
That, even as Beijing pivots decisively to easing to support the broader economy. This week, some 700 billion yuan in short-term funding comes due. “The one common factor overshadowing the financial centers of Shanghai, Shenzhen and Hong Kong in 2021 was one of the largest declines in nominal money supply ever,” Jefferies’ Sean Darby said, on the way to suggesting that “even without a slowing mainland economy and a burgeoning technology regulatory regime, the equity markets were likely to underperform their peers.”
Meanwhile, another pro-democracy Hong Kong news outlet said it plans to close shop. The writing, Citizen News chief editor Chris Yeung said, is on the wall. “Overall the media is facing an increasingly tough environment. Those seen as critical or troublemakers are more vulnerable,” he lamented.
“We all love this place deeply,” the outlet said, in a social media post. “Regrettably, what was ahead of us is not just pouring rains or blowing winds, but hurricanes and tsunamis.” (Hurricane Xi.)
The decision came just days after Hong Kong police raided Stand News, and arrested seven for conspiracy to publish seditious content.
Read more: Black Sheep In Hong Kong
With China being the world’s 2nd largest economy, I’m surprised we’re not seeing more analysis about possible contagion from China’s economic headwinds (hurricane) impacting other economies.
Wait until next fall. The real estate collapse in the US that trigger the GFC started in early 2007, but the economic collapse didn’t materialize until early 2008.