October 3, 2023

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Chinese property stocks rose after Country Garden avoided a default

Chinese property stocks rose after Country Garden avoided a default

Nanjing, China – August 18, 2023 – An aerial photo shows a residential area in Evergrande in Nanjing, eastern China’s Jiangsu Province, August 18, 2023. (Photo by Costfoto/NurPhoto via Getty Images)

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Shares of Chinese real estate developer Evergrande rose as much as 82% on Wednesday, leading to gains in the Hang Seng Index.

Since then, the stock has pared its gains, but remains about 70% higher.

The real estate sector was the biggest gainer on the HSI, but the overall index remains in negative territory, led by healthcare stocks and industrial stocks.

Other stocks such as Country Garden Holdings and Logan Group also rose, gaining as much as 26% and 28% respectively, while the Hang Seng mainland Property Index rose about 4%.

The gains come after Country Garden was able to make $22.5 million in bond coupon payments on Tuesday, narrowing its scope to avoid a default.

Bond payments were originally due in August, but Country Garden made the payments hours before a 30-day grace period expired.

China’s real estate sector has struggled since Evergrande defaulted in 2021. Last week, the stock resumed trading and closed down nearly 80% in its first session in 17 months. Evergrande shares closed at 35 Hong Kong cents on Tuesday.

Other real estate stocks have also fallen in the past year amid fears of contagion. Country Garden shares are down 53% so far this year while Logan shares are down 18%.

On Wednesday, China’s state-owned Securities Times reported I posted a comment Calling for “policies that restrict property purchases in cities other than the hottest first-tier cities” to be lifted as soon as possible, according to a CNBC translation.

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“In the current situation where there are significant changes in the relationship between supply and demand in the real estate market, it is no longer appropriate to maintain the restrictive policies that were previously implemented to curb speculation,” the commentary said.

It therefore concluded that there was an “urgent need” for increased policy support to boost sales, thus freeing up demand that had been suppressed by such stringent housing policies.

— CNBC’s Clement Tan contributed to this report.