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2015 was the worst year! Chinese stock market faced ten consecutive weeks of sell-off, will Country Garden default soon?

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2015 was the worst year! Chinese stock market faced ten consecutive weeks of sell-off, will Country Garden default soon?

Ark Invest founder Cathie Wood expressed concerns about the Chinese economy in August and Ark has already reduced its exposure to China to zero. With Evergrande Group filing for bankruptcy, is China's largest real estate developer Country Garden also on the brink of default? The Chinese stock market has been sold off for ten consecutive weeks, marking the worst situation since 2015!

Cathie Wood's perspective: The Federal Reserve is exacerbating global deflation risks, spreading from China to other regions.

Chinese Stock Market Faces Tenth Consecutive Week of Sell-Offs

The CEO of asset management company Lumida, Ram Ahluwalia, recently pointed out that the Chinese stock market has faced ten consecutive weeks of sell-offs, marking the worst situation since 2015!

He highlighted several challenges that China is currently facing:

  • Long-term decline in exports to the US/Eurozone
  • Long-term aging population issue
  • High youth unemployment rate
  • Evergrande credit/savings issue
  • Fraud and counterfeit accounting issues

Countdown to Default for Country Garden

In addition to Evergrande's bankruptcy, China's largest property developer, Country Garden, was previously reported to be facing financial crisis. According to a report by Reuters today, if Country Garden (2007.HK) fails to pay $15 million in interest today (within the 30-day grace period), all its offshore debts will be considered in default. In the past few weeks, Country Garden has also had other interest payments outstanding, although the 30-day grace periods for these payments have not yet expired.

JPMorgan stated that since 2021, 40% of China's housing sales volume has been defaulted by developers. Data from CreditSights shows that since 2021, Chinese developers have defaulted on over $114.6 billion of the $175 billion USD bonds that have not been repaid.

Can China's Ban on Short Selling Prevent Stock Market Decline?

The Shanghai Shenzhen 300 Index has already dropped by over 6% year-to-date and around 20% in 2022. Uncertain economic prospects have also led to a significant outflow of foreign funds.

According to a report by The Wall Street Journal, Chinese authorities have recently made efforts to boost the stock market, with the China Securities Regulatory Commission issuing measures to combat short selling. Previous measures included restricting major shareholders from reducing their stock holdings and reducing the stamp duty on stock trades.