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China’s property woes put prestige global projects in play

By Marc Jones and Tommy Wilkes

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China's property woes put prestige global projects in play
© Reuters. FILE PHOTO: The logo of developer R&F Properties is seen near the One Thames City construction site at Nine Elms, in London, Britain, October 6, 2021. REUTERS/John Sibley/File Photo

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By Marc Jones and Tommy Wilkes

LONDON (Reuters) -China’s property sector woes could spell trouble for prestige mega-projects in London, New York, Sydney and other top cities as the developers behind them scramble for cash.

While China Evergrande Group’s struggles have dominated the crisis, the risk to multi-trillion dollar global property markets stems from some of its rivals that have spent the last decade competing to build ever taller and grander skyscrapers.

Shanghai-based Greenland Holdings, which breaches as many of China’s debt “red lines” as Evergrande, has just built Sydney’s https://www.greenlandaustralia.com.au/en/greenland-centre tallest residential tower, has plans to do the same in London https://spirelondon.com and has billions of dollars worth of projects in Brooklyn, Los Angeles, Paris and Toronto.

The developer says it remains committed to its flagship builds including its long-delayed, 235 metre-high Spire (NYSE:) London tower, but it put part of another major London site on the market earlier in the year and other firms are hoisting for sale signs too.

Evergrande and Kaisa Group, which was the first Chinese property firm to default back in 2015, are both trying to sell Hong Kong buildings to drum up desperately-needed cash., while Oceanwide Holdings has just had what was supposed to be San Francisco’s tallest tower seized by disgruntled creditors.

“I suspect, as with anything, if you’re running into liquidity issues you start to look to sell your investment properties,” said Omotunde Lawal, head of emerging-markets corporate debt at asset manager Barings, which holds some Chinese property firms’ bonds.

As many Chinese firms overpaid for prime overseas sites in the scramble to secure them, the question is who will buy them, Lawal added. “Probably they are unlikely to get cost, so I think it depends on just how desperate they get.”

SIZABLE ASSET SALES

Guangzhou R&F Properties is another major firm in focus after it required an emergency cash injection this month. It has two giant unfinished developments in London, including one with a dozen skyscrapers next to the Thames https://www.thamescity.com, as well as numerous builds in Australia, Canada and the United States.

An R&F spokesperson in London said it remained “fully committed” to all its British projects.

But with nearly $8 billion of debt to repay in the next 12 months, only $2 billion of freely available cash and sales down nearly 30% year-on-year last month, major credit rating agencies say it will need to cash in some chips.

“R&F’s capacity to handle its near-term debt maturities will hinge on the execution of sizable asset sales,” S&P said, predicting that buildings, hotels and various stakes in projects could all be sold. Fitch meanwhile estimates R&F has 836 billion yuan ($130 billion) of assets that could potentially be sold.

R&F, Greenland, Evergrande and Kaisa have all declined to comment further on their finances. Oceanwide said last week it was “actively discussing” the situation with its San Francisco project with the creditors involved.

SPENDING SPREE

Chinese developers went on a major international spending spree between 2013 and 2018, but the splurge has slowed abruptly since as Beijing has moved to curb firms’ excessive debts.

After pouring more than 28 billion pounds into London projects in 2018, they have spent 1.5 billion pounds in the first half of 2021, the lowest amount since 2012, data from Real Capital Analytics shows.

Figures from estate agents Knight Frank paint a similar picture in Australia, New York and other top north American cities, where Greenland, R&F and others big firms including Country Garden, Poly Property and China Vanke also spent tens of billions of dollars a year.

Stephanie Hyde, UK chief executive of real estate firm Jones Lang LaSalle, which markets for R&F in London and another firm called Xinyuan which has just narrowly avoided default, told Reuters she wasn’t aware of any Chinese firms looking to sell-up due to strains back in China.

If they did decide to sell though, they were likely to find buyers relatively quickly she added, due to the flood of international investment money current circling global property markets like London where prices are now at a record high.

Chris Gore, a central London principal at real estate firm Avison Young, said he wasn’t aware of any sudden selling plans either, but that the pressure would grow on Chinese firms if the crisis at home continued.

“If they needed to sell and could sell for a profit, then I think they would just sell,” Gore said. “There wouldn’t be a problem if a few wanted to sell, but if they all suddenly wanted to exit at the same time, they couldn’t.”

($1 = 0.7263 pounds)

($1 = 6.4050 renminbi)

Chinese property stocks come crashing down https://tmsnrt.rs/3Cwknfh

Monthly Land Sales in Mainland China (billions of yuan) https://tmsnrt.rs/3uGApQv

China’s most indebted property companies https://tmsnrt.rs/3u2Onfv

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Stock Market

APR stock exchanges for today are trading in different directions

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APR stock exchanges for today

APR stock exchanges for today are trading in different directions. Key stock indices of the Asia-Pacific Region (APR) on Thursday had no unified dynamics, according to trading data. China’s stock exchanges are still closed with the day off.

APR stock exchanges market – what’s going on?

Hong Kong’s Hang Seng Index was down 0.45% to 1,806.95 points, Australia’s S&P/ASX 200 was down 0.07% to 6,811.2 points, Japan’s Nikkei 225 gained 0.93% to 2,790.5 points and Korea’s KOSPI gained 1.24% to 2,242.28 points.

Chinese markets are still closed with the next holiday. On Friday Shanghai Composite index declined 0.55% to 3,024.39 points and Shenzhen Composite by 1.3% to 1,912 points.

On Thursday, Asia-Pacific indexes didn’t show the same dynamics as traders were evaluating statistics from the U.S. The number of jobs in private companies in the country grew by 208,000 in September, although analysts expected the index to increase only by 200,000. Thus, the positive economic data supported fears of a sharper rate hike by the U.S. Federal Reserve.

“The economy is too strong for the Fed to turn the other way. The strong start to October is over,” the Associated Press quoted Oanda analyst Edward Moya as saying.

Earlier, we mentioned that Wall Street closed lower after a two-day rally.

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Stock Market

Wall Street ends lower after two-day rally

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Wall Street stocks followed European and Asian bourses lower. Wall Street indices didn’t continue the rally and closed lower on Wednesday after the release of the statistics, which showed a strong demand for labor force in the US, due to which the Federal Reserve might keep the interest rates at a high level for a longer period.

Why does Wall Street end lower? 

Fed officials are pushing to aggressively tighten policy to fight inflation, which the market fears could lead to a sharp slowdown and a possible recession.

Private employers stepped up hiring in September, ADP data showed Wednesday. The statistics indicate that labor demand is still strong despite rising rates and tighter financial conditions.

The Fed is expected to raise borrowing costs by 75 basis points for the fourth time in a row at its Nov. 1-2 meeting, according to rate futures prices, data from the CME FedWatch tool showed.

Earlier, we reported that Wall Street’s top bulls listed reasons for the U.S. stock market rally.

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Stock Market

Wall Street’s top bulls list reasons to rally U.S. stock market

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Analysts at investment bank BMO Capital Markets expect a rally stock market in the U.S. in the fourth quarter. The expert sees several reasons for the stock market rally, reports Business Insider.

Companies are already cheap relative to projected profits

Markets are focused on the future, and investors will soon return to stocks and ignore the current difficult macroeconomic situation caused by rising inflation.

About two-thirds of stocks are trading at a discount

Another indication that stocks are undervalued and we are in for a rally in the US stock bear is the fact that about 66% of the S&P 500 Index securities now have a forward P/E ratio below their historical averages.

Cyclical stocks and growth stocks are worth less than protective stocks

In contrast, securities from cyclical sectors such as consumer staples, energy and financials are trading at a discount relative to their forward P/E average. The same is true for communications services and IT.

Earnings forecasts are down, but may be up at the end of the third quarter

Fears that companies will record a big drop in profits are greatly exaggerated. The next earnings season, which begins in mid-October, will restore investor calm and spark a rally in the US stock bar.

Earnings forecasts are better now than at the end of 2021

Usually between January and September, earnings forecasts for S&P 500 companies are down 3.8%. This year, however, analysts have raised their estimates by 0.5%, despite high inflation affecting business margins.

Profits continue to rise

In the third quarter, profits are expected to grow at an annualized rate of more than 3%. That said, it’s also expected that in each of the four quarters, companies will record exactly the growth, not the decline, in profits.

The fourth quarter is the best time for stocks

The S&P 500 tends to end the year with strong gains. According to the BMO, since 1945, the index has averaged a 4.4% gain in the fourth quarter (not including 2008 results).

Losses in the previous three quarters lead to a rally in U.S. stock bear in the fourth quarter

Strong declines in the first three quarters of the year historically form the basis for outstanding results in the fourth quarter. For example, with the S&P 500 down more than 20% in September, the index cut its losses, climbing an average of 9.6% per quarter.

Earlier, we reported that European bourses were up noticeably in trading on Tuesday.

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