September 23, 2021

Hong Kong leads Asia rally as Evergrande jumps as much as 32%; STI up 0.9%

By ellen

HONG KONG (BLOOMBERG, AFP, REUTERS) – Asian markets rose with Chinese property stocks rallying on Thursday (Sept 23) amid debt repayment hopes for China Evergrande Group, after Wall Street overnight weathered the prospect of a reduction in Federal Reserve stimulus as early as next month.

China’s central bank, meanwhile, on Thursday net-injected the most short-term liquidity in eight months into the financial system, stoking bets that Beijing hopes to soothe market nerves over Evergrande.

The People’s Bank of China pumped in 110 billion yuan (S$23 billion) of cash with seven- and 14-day reverse repurchase agreements. That was the largest addition through open-market operations since late January, when a funding squeeze sent interbank rates soaring. Prior to Thursday, the PBOC had injected liquidity for three straight sessions.

Hong Kong led advances as it reopened after a midweek break to catch up with Wednesday’s news that Evergrande had agreed a plan to repay interest to its domestic bondholders, soothing worries of a default that have raised talk of a hammer blow to the Chinese economy. While Wednesday’s statement was vaguely worded – not detailing how much and when it would pay – it was grasped as a much-needed positive sign.

The focus now is on whether the developer can pay US$83.5 million (S$113 million) of interest due Thursday on a five-year US dollar bond.

Observers pointed out that even if it fails to meet its obligations, the firm still has 30 days to come up with the cash. However, they will be keeping an eye on how it deals with those dollar-denominated notes.

“International investors will watch closely for new developments and for any state reaction, and assess how contagious it can be for the rest of the economy,” Bernard Shaw, an Asia bond syndicate banker at Daiwa Capital Markets Singapore, said.

Hong Kong rose more than 2 per cent in initial exchanges before easing slightly for a gain of 0.94 per cent, with Evergrande surging as much as 32 per cent briefly – though its shares are still down more than 80 per cent this year. At 11.33am in Hong Kong, they were up 12.33 per cent.

Holidays this week across much of Asia have contributed to volatility. Mainland China’s equities markets were closed on Monday and Tuesday while Hong Kong was closed on Wednesday. 

Chinese blue chips gained 0.58 per cent, Australia’s benchmark rose 1.17 per cent and South Korea’s Kospi fell 0.42 per cent after returning from a three-day break to catch up with global falls earlier in the week. 

Singapore’s Straits Times Index was up 0.88 per cent at 11.44am.

US stock futures, the S&P 500 e-minis, were up 0.31 per cent.

China high-yield dollar bonds, dominated by the property sector, also climbed three cents on the dollar on Thursday morning, according to credit traders.

Overnight, Fed chair Jerome Powell said the US central bank could begin scaling back asset purchases next month and complete the process by the middle of next year. Officials also revealed a growing inclination to raise interest rates next year.

Mr Powell said he did not expect the Fed to begin rate increases until after completing a taper process that would wrap up around the middle of next year.

The gradual shift away from an ultra-loose policy, along with fears of contagion emanating from Evergrande, have shaped a volatile week for markets amid worries about a slowing recovery from the Covid-19 pandemic.

“The Fed has to be pleased that their communication on the longer way to tapering has avoided the dreaded fear of the tantrum,” Mr Jeffrey Rosenberg, senior portfolio manager for systematic fixed income at BlackRock, said on Bloomberg Television.

“The flatter curve is kind of an initial response. Yes the curve is flatter, but you’ve got to squint to see that market reaction. This is a very good outcome for the Fed in terms of signalling their intent to give the market information well ahead of the tapering decision.”

Fears that Evergrande could fail to meet its obligations jolted global markets early this week as traders worried the giant developer’s issues could spill over to other property firms and banks.

Concerns eased somewhat on Wednesday when the People’s Bank of China injected 90 billion yuan (S$19 billion) into the banking system.

The three major US stock indexes closed up 1 per cent on Wednesday, not far off from where they were before the Fed announcement, and US Treasury yields see-sawed, before largely taking the change in their stride.

The US dollar rose after the Fed chair’s remarks, hitting a month-high of 93.526 against a basket of currencies. It particularly gained against the euro and yen, but paused for breath in Asian hours.

US crude dipped 0.11 per cent to US$72.15 a barrel. Brent crude fell 0.35 per cent to US$76.13 per barrel.

Spot gold lost 0.24 per cent to trade at US$1,763.43 per ounce.