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Good morning. Shares in Country Garden slumped to a record low on Monday after the Chinese developer suspended trading in at least 10 of its mainland bonds, spurring a wider sell-off in property-linked stocks.
The company, formerly the largest developer in China by sales, missed international bond payments last week in a sign that a two-year liquidity crisis across the real estate sector was threatening to escalate.
Shares in the group fell as much as 18.4 per cent in Hong Kong following a statement released over the weekend that said several bonds issued by the company and its subsidiaries would be suspended from trading this week.
Shares in developer Jinmao Holdings also fell as much as 9.8 per cent after the company issued a profit warning late on Friday. A Hong Kong index tracking the mainland property sector dropped as much as 4.8 per cent, while the broader Hang Seng index fell 2.5 per cent and China’s CSI 300 shed 1.3 per cent.
Until recently Country Garden was seen as a safer prospect than many of its highly leveraged peers. Its battle to survive is a crucial test of the health of China’s property sector, and Beijing’s policies towards it, as homebuyer confidence dips.
On Monday analysts at Morgan Stanley downgraded Country Garden to underweight, warning that the company’s “worsening liquidity may lead to higher chance of default in the near term”. Chinese officials have stepped up their supportive rhetoric about the real estate sector in recent weeks amid concerns over widespread defaults.
Country Garden on Friday said it would “spare no effort in self-rescue”. Read the full story.
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FT Alphaville: Even if Country Garden makes the late payment, it would only be delaying what appears to be inevitable.
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Related: Entities linked to Chinese conglomerate Zhongzhi have failed to make payments, sparking concern over the country’s wealth management industry and its exposure to a troubled property market.
Here’s what else I’m keeping tabs on today:
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Economic data: China releases national retail sales, industrial output, foreign direct investment, while second-quarter GDP figures are due from Japan. Japan’s economy likely grew an annualised 3.1 per cent in the period from April to June. (Reuters)
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Results: China Airlines and National Australia Bank report earnings.
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Holidays and anniversaries: Financial markets in India and South Korea will be closed, as both countries have independence day holidays. Today is also the 75th anniversary of the partition that created the states of Pakistan and India.
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Women’s World Cup: The semi-finals begin with Spain vs Sweden. The victor advances to the final on Sunday, where they’ll play the winner of Wednesday’s Australia vs England match.
Five more top stories
1. Russia’s central bank will hold an emergency interest rate meeting on Tuesday after the rouble fell below Rbs100 to the dollar, prompting a squabble among policymakers over how to deal with the economic fallout from the invasion of Ukraine. The extraordinary meeting will take place after the central bank said it might increase its key interest rate, currently at 8.5 per cent. Read more on the rouble’s precipitous slide.
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War in Ukraine: Russian air strikes caused a series of explosions and fires in the Black Sea port city of Odesa, marking the latest bombardment in a weeks-long campaign aimed at choking Ukraine’s grain exports to global markets.
2. Saudi Arabia and the United Arab Emirates are buying up thousands of the high-performance Nvidia chips crucial for building artificial intelligence software. The Gulf states’ purchases via state-owned groups come as the world’s leading tech companies rush to obtain the scarce chips as part of a global AI arms race.
3. Donald Trump is prepared to face a potential fourth criminal indictment as soon as this week. A grand jury in Georgia is hearing evidence of alleged meddling in the 2020 presidential election and is nearing a final decision, as local authorities have set up barricades outside the county’s courthouse in Atlanta. Here’s what we know about the potential new charges.
4. Markets in Argentina reeled on Monday after the shock victory of Javier Milei, a radical libertarian economist and outsider candidate, in the country’s primary poll ahead of its presidential election in October. Milei won more than 30 per cent of the vote on pledges to dollarise the country’s economy and dramatically cut spending. Read more on Argentina’s “political earthquake”.
5. Huge inflows over the past two weeks to just four exchange traded funds tracking China’s blue-chip CSI 300 index have prompted speculation that Beijing’s “national team” is at work trying to support the economy. The speculation has been fuelled by a recent pledge from China’s leaders to boost the economy and “expand consumption by increasing residents’ income”. Read the full story.
The Big Read
Two forms of lithium-ion battery technology are vying to dominate an industry destined to be worth hundreds of billions of dollars. The choices of consumers, politicians and carmakers will play a crucial role in either cementing China’s grip over the global electric vehicle market or loosening it and risking a slower, more costly energy transition.
We’re also reading . . .
Chart of the day
Multinationals’ desire for a “China plus one” strategy, following supply chain disruptions and geopolitical tensions between Washington and Beijing, is driving iPhone manufacturer Foxconn into a renewed push into India. But the pivot to India is also revealing limits to Foxconn’s willingness and ability to diversify.
Take a break from the news
Books tackling the challenges of artificial intelligence, the race for natural resources and the rise (and fall) of billionaires make the longlist for this year’s Financial Times and Schroders Business Book of the Year Award. Read the full list.
Additional contributions by Grace Ramos and Gordon Smith
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