Investing

How China's Property Crisis Can Spill Into Commodities, Other Markets

Tim Fries

Published: September 26, 2023 10:25 pm

Chinese property firms remain under pressure as share prices in the sector took a fresh downturn. Notably, shares of the country’s biggest developer, Evergrande, crashed 21% Monday after the company canceled crucial creditor meetings. As the market anxiety rises, China now faces risks that the current crisis could extend to other sectors, particularly commodities.

Chinese Property Stocks Suffer Worst Daily Slump in 2023

China’s property market can’t catch a break. On Monday, the stock prices across the sector witnessed the sharpest drop in 2023, with Evergrande leading the losses following a 21% drop after it canceled key creditor meetings at the last minute.

The country’s property crisis emerged in 2020 after the country’s most prominent developers came under extreme pressure in the wake of new regulations on the sector’s debt limits. The crisis quickly spread beyond the big real estate players like Evergrande in Country Garden, affecting Kaisa Group, Sinic Holdings, Sunac, and more.

The challenges continued to mount this week after Evergrande’s mainland unit said it failed to settle an onshore bond, adding to the uncertainty looming over the company’s future as its restructuring plan with offshore creditors teeters. The developer scrapped key creditor meetings at the last minute, Bloomberg reported Monday, saying it must revisit its restructuring plan, saw its money management unit members detained, and failed to meet regulator qualifications to issue new bonds.

The deteriorating market crisis has been also weighing heavily on Chinese stocks, with Country Garden, Logan Group, and China Aouyan, all falling notably this week.

Risks of Contagion Grow, Commodity Market First in Line

However, that’s not the end of the woes for China’s economy. The growing turmoil is now causing fresh risks of further contagion.

In other words, the ongoing crisis and worsening investor sentiment could spread into other Chinese sectors, most notably commodities. This nervousness was reflected in the latest price movements, with iron ore plummeting over 4% on Monday.

The drop comes amid a period when seasonal demand from China has historically been robust. The world’s second-biggest economy purchases around 70% of the world’s seaborne iron ore, but this trend is now in jeopardy as risks grow. As a result of the turmoil, Chinese developers have also stopped restocking steel.

Last month, the Chinese government implemented measures to support the national stock market and address its vulnerabilities. However, these actions have done little to curb the worsening crisis so far effectively.

This article originally appeared on The Tokenist