Chinese markets regained some of their balance, Thursday, with stocks in China and Hong Kong rising, led by the health care and technology sectors, coinciding with the rise of the yuan to its strongest levels in three and a half years. The improvement came in light of the decline of the dollar and the recovery of risk appetite in Asian markets, although caution remains regarding the strength of the Chinese economy and the direction of US monetary policy.
The CSI300 index of major Chinese stocks ended the session up 0.1 percent, after a sharp loss of 3 percent in the previous session, while the Shanghai Composite Index rose 0.2 percent. In Hong Kong, the Hang Seng Index achieved a stronger performance, rising 0.8 percent.
The recovery came as part of a broader wave in Asian markets after the global sell-off in technology stocks. The KOSPI index in South Korea jumped 6 percent, while Japanese stocks rose by about 1.4 percent, which helped restore some confidence to investors after a session characterized by strong selling pressure.
Sentiment also received support from new Chinese companies, including Foxconn Industrial Internet and CCCC Design & Consulting, announcing plans to buy back their shares or carry out purchases, which are steps that investors usually view as an indication of companies’ confidence in their valuations and future prospects.
The healthcare sector was the most prominent market driver. China's CSI for vaccines and biotechnology jumped 9 percent, while the Hang Seng Innovative Medicines Index rose by more than 4 percent. The gains came after “Moderna” and “Merck” announced positive developments in a new field of cancer treatment, which was quickly reflected in the evaluations of biotechnology and health care companies.
On the other hand, technology stocks recovered part of their previous losses. The STAR100 index rose by about 2 percent after falling by 7 percent, while the Hong Kong Artificial Intelligence Index rose by 2.3 percent.
But the wave of recovery did not include all high-tech stocks. The shares of the Chinese humanoid robotics company Unitree fell 19 percent, after rising more than five-fold on its first day of trading on the Shanghai Stock Exchange. The decline reflects profit-taking operations after the exceptional jump that accompanied the company's listing, at a time when investors are increasingly sensitive to the high valuations of technology stocks.
In parallel with the improvement in stocks, the currency market provided an additional indication of the ongoing shifts in capital flows, as the yuan in local trading touched the level of 6.7203 yuan to the dollar, which is the strongest since February 2023.
The Chinese currency's rise was mainly due to the weakness of the dollar, which fell 0.8 percent against major currencies overnight, falling to its lowest levels in two and a half months. The decline in US Treasury bond yields contributed to pressure on the US currency after the Treasury Department revealed measures to support the long-term bond market.
But at the same time, the People's Bank of China has shown that it does not want a rapid and uncontrolled rise in the yuan. The bank set the daily reference rate at 6.7808 yuan to the dollar, 612 points weaker than Reuters estimates, in the largest deviation in the weak trend since February.
This step reveals a delicate equation before policymakers in Beijing. A stronger yuan may help reduce the cost of imports and enhance confidence in Chinese assets, but in return it may reduce the competitiveness of exports, which represent one of the important sources of support for the economy in light of continued weak domestic demand.
The most influential external factor remains the course of the dollar and US monetary policy. Despite the Treasury Department's measures to support bond market liquidity, concerns persisted about the US financial situation after the total debt exceeded $40 trillion for the first time.
Gusheng Securities believes that doubling long-term bond repurchase operations aims to stabilize liquidity and send a signal of support to the markets, but it does not address the structural pressures associated with the high fiscal deficit and the increase in long-term debt issuance.
For Chinese markets, the combination of a stronger yuan and a recovery in technology and healthcare stocks provides short-term support for sentiment, but does not eliminate fundamental challenges. The ability of this recovery to continue will remain linked to the performance of the local economy, the direction of the dollar, and US inflation and employment data, which in turn will determine monetary policy expectations in the world’s largest economy.
The story of Hui Ka Yan, the founder of the Chinese Evergrande Group, also known as Xu Jian, has transformed from one of the most prominent tales of China's economic rise into a stark symbol of the collapse of the real estate growth model that has dominated the country for decades.
The man who topped the list of Asia's richest people at the height of his success ended up being sentenced to life imprisonment, while the repercussions of the fall of his real estate empire are still pressuring the second largest economy in the world.
The ruling came after Hui, 67, pleaded guilty in April, after three years in detention, to eight charges that included misuse of funds, fraud in raising funds, and illegally receiving public deposits.
A court in Shenzhen also ordered the confiscation of all his personal property.
The scene bears a striking contrast with Hui's photo from five years ago.
In 2021, the businessman appeared during the Chinese Communist Party’s celebrations of the centenary of its founding in Tiananmen Square, among influential figures, in a presence that many considered at the time evidence of the status he enjoyed within Chinese business circles. But after only months, Evergrande began to default on its external obligations, before later entering into liquidation.
Its collapse became one of the biggest manifestations of the real estate crisis that struck China, after the sector relied for years on intensive borrowing, rising land and housing prices, and advance sales to finance new projects.
Hui's personal story was, in itself, a reflection of China's massive economic transformations. He grew up in a rural village in Henan Province in the center of the country under the care of his grandmother, and previously worked as a steel technician, before founding “Evergrande” and turning it into one of the largest Chinese real estate development companies.
The company has relied on an aggressive model for its expansion, which includes borrowing to buy land, building projects quickly, and selling residential units at lower margins to achieve rapid capital turnover. The strategy succeeded during the years of the real estate boom, until Evergrande's annual sales reached 700 billion yuan, or about 100 billion dollars, by 2020, and with this rise, the wealth of its founder swelled.
In 2017, Hui’s net worth amounted to $45.3 billion, making him the richest man in Asia according to Forbes magazine...but by 2023, his wealth had shrunk to about $3 billion, before the judiciary now ordered the confiscation of his property.
Financial empire
Evergrande was not just a real estate company. At the height of its expansion, Hui pushed into other sectors including electric cars and football, in an attempt to build a diversified group and capitalize on sectors that were receiving increasing official attention. He also forged relationships with a number of prominent businessmen in Hong Kong. One of the most prominent milestones was Evergrande obtaining an investment worth $150 million from Cheng Yu-tung, founder of the New World Development Group, a year before the company’s initial public offering in Hong Kong in 2009, which was financing that helped the group overcome a liquidity crisis that followed its rapid expansion.
Former employees described Howie as a workaholic, who rarely appeared in the media, but was very ambitious and sometimes demanded that those around him follow the pace of his work. During the boom years, he assured investors and journalists that the group's high sales and asset size were able to cover its huge debts. But this equation began to disintegrate when Beijing tightened restrictions on real estate borrowing, as part of its attempt to reduce financial risks. The model that gave Evergrande its tremendous speed became a fatal weakness when liquidity shrank, real estate sales declined, and debt could no longer be rolled over in the previous way.
A deeper story of falling
Here the importance of Howie's case goes beyond the fate of a single businessman. The fall of Evergrande revealed the extent of the Chinese economy's dependence on real estate, not only through development companies, but also through local governments, banks, families, and wide chains of suppliers and contractors. The real estate crisis still represents a challenge for Beijing, as it puts pressure on consumer confidence, investment, and asset values, at a time when the authorities are seeking to redirect the economy towards the technology sectors, advanced manufacturing, and domestic consumption.
The ruling also carries a message to the business community that the phase of debt-driven growth and uncontrolled real estate expansion has become more difficult. The man who presented himself as one of the beneficiaries of China's reform and opening-up process has today become one of the most prominent symbols of the end of an entire economic era.
Hui said during the China Charity Awards ceremony in 2018 that “Everything that I and Evergrande have is a gift from the Party, the state and society.” Less than a decade later, the picture had completely changed: a real estate empire in liquidation, a fortune dissipated, and a founder serving a life sentence. Thus, the fall of Hui Kayan does not just represent an exceptional end for one of China's most famous billionaires, but rather summarizes a complete cycle of the real estate boom... starting with rapid expansion, huge debts, and then a collapse that left its effects on companies, investors, consumers and the entire economy.
The most important question now is the extent to which China is able to address the legacy of that era without the long real estate crisis turning into a permanent obstacle to growth.
Japanese markets regained a measure of calm, Thursday, after the US Treasury's measures to calm the long-term bond market helped reduce yields globally, which was quickly reflected in Japanese government bonds and supported local stocks, after a severe wave of turmoil during the previous days.
The Nikkei index rose 1.36 percent to close at 66,216.79 points, while the broader Topix index rose 1.18 percent to 4,059.73 points, in a session marked by a clear improvement in risk appetite.
The improvement came after the US Treasury Department announced a doubling of the volume of long-term bond repurchase operations, in a move that contributed to reducing US Treasury bond yields and its impact extended to the debt markets in Japan and Europe.
Long-term borrowing costs in the United States, Germany and Japan had jumped to their highest levels in decades earlier in the week, due to fears of inflation in public debt and high oil prices resulting from continuing tensions in the Middle East.
Wataru Akiyama, equity strategist at Nomura Securities, said that the decline in interest rates was the “main factor” behind the market’s rise, noting that sectors that had previously lagged behind the wave of artificial intelligence and semiconductor stocks began to attract greater interest. This was reflected in the expansion of gains. The shares of 182 companies out of 225 components of the Nikkei rose, compared to a decline of only 42 stocks and the stability of one stock.
“Sumitomo Metal Mining” topped the gains, with an increase of 10.76 percent, followed by “Sumitomo Pharma” with an increase of 8.48 percent, then “Kansai Electric Power” with an increase of 8.37 percent, which is the largest daily jump for the stock since August 2024. In contrast, “Ozora Bank” shares declined 3.11 percent, and “Ebiden” shares declined 2.87 percent. And “Nippon Steel” 2.20 percent.
• Strong rebound in the bond market
The picture was clearer in the debt market. The 10-year Japanese government bond yield fell 5.5 basis points to 2.835 percent, after approaching the 3 percent barrier a few days ago.
The 20-year bond yield also fell by 8.5 basis points to 3.690 percent, the 30-year bond yield fell to 3.995 percent, while the 40-year bond yield fell by 9.5 basis points to 4.055 percent.
As for the five-year bond yield, it fell by 3 basis points to 2.090 percent, after it had reached a record level during the week. The two-year yield, which is most sensitive to the Bank of Japan's policy expectations, remained relatively stable. Investors were further reassured by the Ministry of Finance’s success in the auction of 20-year bonds worth about 2.5 trillion yen, equivalent to about 15.8 billion dollars. The coverage ratio was 3.98 times, lower than the July auction, but still higher than last year's average.
Takayuki Miyajima, chief economist at Sony Financial Group, said that the US Treasury’s move “temporarily halted the global trend of rising long-term interest rates,” adding that speculation is growing about the possibility of Japan also taking steps to address supply and demand imbalances in the bond market.
• Foreigners sell bonds
However, pressures remain beneath the surface; Finance Ministry data showed that foreign investors sold a net worth of 1.25 trillion yen in long-term Japanese bonds in the week ending August 15, compared to outflows of only 56.7 billion yen in the previous week.
Short-term treasury bills also recorded outflows of 1.21 trillion yen, a sign of continued caution towards the Japanese debt market as expectations of a rate hike in September take hold. This week, the two-year bond yield reached 1.71 percent, the highest level since April 1995. This reflects a growing conviction that the Bank of Japan may continue monetary tightening.
