What happened
Shares of China's embattled property developer Evergrande Group (EGRN.F +0.00%) surged by more than 10% in the first hour of trading on Tuesday. The move comes as trading in the shares resumed following a suspension on Monday.
Image source: Getty Images.
The suspension was due to the forthcoming announcement relating to the order to demolish 39 buildings under construction. Local media picked up on developments over the weekend, and the details of the announcement were widely distributed before the official release by the company on Tuesday.
When it came, investors were relieved to see that the order relates only to the 39 buildings and "does not involve other plots of land of the Ocean Flower Island project," according to the release.
So what
It's not exactly a game changer for the company. Still, given the liquidity issues facing Evergrande and the rampant speculation around the developer's future, any news perceived as being positive is welcomed by traders.
In the end, Evergrande still has a severe liquidity problem, and there are fears that wide-scale discounted home sales by Evergrande, Kaisa, and others could spill over into a more significant problem for China's property markets. Declining house prices would put pressure on consumer spending and the Chinese economy at large, and there might be pressure on China's credit markets following large-scale debt defaults.
Indeed, the latest data from the National Bureau of Statistics in China shows new home price growth slowing year over year in the six months ending in November. Hopefully, the situation will stabilize soon.
Data source: National Bureau of Statistics in China. Chart by author. YOY = year over year.
Now what
Evergrande's troubles remain, and there's nothing in today's announcement to suggest otherwise. A slowing housing market and a collapse in confidence among house buyers (at least for Evergrande) exacerbate the developer's problems. As such, the stock is to be avoided by all but the most risk-seeking investors.
