The sell-off in China’s stock market in recent weeks has caused widespread global concern. After reaching a seven-year peak in mid-June, the Shanghai Stock Exchange (SSE) Composite Index has nosedived by 30% in the past three weeks, wiping more than RM 20 trillion off share values, a figure equivalent to 1/3 of China’s 2014 GDP. On July 8, around 51% of A-shares in Shanghai and Shenzhen were suspended for trading in an attempt to stave off further losses.
The crash has been caused by the creation of a stock market bubble reflecting an abundance of liquidity and not solid economic performance. When the upward trend seen since 2014 was reversed, investors naturally cashed out and sought to lock in profits. However, this process was accelerated by the deleveraging of margin financing which grew alongside the bubble.
The turmoil is unlikely to lead to systemic risks to China's financial system as the Chinese banking system is well-capitalized; the major domestic banks are controlled by the government; and gearing is at a reasonable level. We believe that Chinese government possesses the will and the resources to prevent systemic risks to the banking system.. Nevertheless, with investor confidence battered by the rout and IPOs suspended, there could be some negative impact on domestic GDP growth in 2015, with consumer spending likely to see weaker growth.
Although we noticed that in the residential market there have been some rare cases of individual buyers postponing purchases or forfeiting deposits owing to unexpected changes in their financial situation and some delays to commercial leasing and purchasing activity by certain domestic private enterprises, CBRE believes the stock market freefall will have no fundamental or negative effect on the Chinese real estate sector. The temporary liquidity crunch incurred by the stock market slide will increase the likeliness of the People’s Bank of China (PBOC) implementing further monetary loosening measures. This will ensure the real estate sector remains in a relaxed policy and lending environment in the short term.
The sell-off in China’s stock market in recent weeks has caused widespread global concern. After reaching a seven-year peak in mid-June, the Shanghai Stock Exchange (SSE) Composite Index has nosedived by 30% in the past three weeks, wiping more than RM 20 trillion off share values, a figure equivalent to 1/3 of China’s 2014 GDP. On July 8, around 51% of A-shares in Shanghai and Shenzhen were suspended for trading in an attempt to stave off further losses.The crash has been caused by the creation of a stock market bubble reflecting an abundance of liquidity and not solid economic performance. When the upward trend seen since 2014 was reversed, investors naturally cashed out and sought to lock in profits. However, this process was accelerated by the deleveraging of margin financing which grew alongside the bubble.
The turmoil is unlikely to lead to systemic risks to China's financial system as the Chinese banking system is well-capitalized; the major domestic banks are controlled by the government; and gearing is at a reasonable level. We believe that Chinese government possesses the will and the resources to prevent systemic risks to the banking system.. Nevertheless, with investor confidence battered by the rout and IPOs suspended, there could be some negative impact on domestic GDP growth in 2015, with consumer spending likely to see weaker growth.
Although we noticed that in the residential market there have been some rare cases of individual buyers postponing purchases or forfeiting deposits owing to unexpected changes in their financial situation and some delays to commercial leasing and purchasing activity by certain domestic private enterprises, CBRE believes the stock market freefall will have no fundamental or negative effect on the Chinese real estate sector. The temporary liquidity crunch incurred by the stock market slide will increase the likeliness of the People’s Bank of China (PBOC) implementing further monetary loosening measures. This will ensure the real estate sector remains in a relaxed policy and lending environment in the short term.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
