Why Evergrande shares have soared 128% in 5 days

In a dramatic turn of events, China Evergrande Group, the beleaguered Chinese property giant, has seen its stock price surge by 128% over the last five days.

The significant uptick comes as a rare piece of good news for China’s crisis-ridden real estate sector, which has faced multiple setbacks amid stricter financial regulations and a languishing economy.

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Catalysts for recovery

The extraordinary market response can be partially attributed to recent favorable news concerning another major player in the Chinese property market, Country Garden, which only last month sparked contagion fears over its ability to repay debts.

Country Garden’s shares have also risen substantially after the company reportedly secured a debt payment extension over the weekend.

Chinese creditors agreed to allow Country Garden to make instalment payments on a 3.9 billion yuan (£430 million; $540 million) onshore private bond over the next three years.

Bloomberg also reports that Country Garden made a payment on a 2.85 million Malaysian ringgit (£490,000; $613,000) denominated bond.

This comes amid moves by Beijing to bolster the faltering Chinese economy.

Last Friday, major banks began paving the way for reductions in lending rates as part of the central government’s strategy to revitalize economic growth.

Evergrande’s rocky road

China Evergrande’s share price increase comes after a highly tumultuous period.

Just over a week ago, the company reported a 33 billion yuan loss for the first six months of the year.

Evergrande shares plummeted by almost 80% on their first day of trading in Hong Kong after a hiatus of a year and a half.

The company has been battling debts of more than $300 billion, a situation exacerbated by Beijing’s 2020 regulations aimed at controlling the amount of money big real estate firms could borrow.

The financial woes of Evergrande have had a domino effect on the property sector, triggering a series of defaults by various developers and leaving numerous building projects incomplete across the nation.

The company’s struggles, coupled with broader economic issues such as weak economic growth, ballooning local government debt, and record-high youth unemployment, have put China in a precarious position.

The bigger picture

China’s property market is an integral part of the nation’s economy, accounting for approximately a quarter of the world’s second-largest economy.

Issues facing home builders, and by extension, industries involved in manufacturing goods for these homes, have had a profound impact as the Chinese economy struggles to rebound from the COVID-19 pandemic.