The current Chinese property woes may prompt an uneasy feeling of déjà vu for investors who remember previous episodes of turbulence in the country’s real estate sector. Not forgetting the knock-on effect they had on wider markets. This is the warning from AJ Bell investment director Russ Mould.
Chinese property giant Country Garden risks defaulting on its bond payments which could have disastrous consequences for the world’s second-largest economy.
At the end of 2022, Country Garden had amassed colossal debt estimated by the group at around $157bn.
The property company’s debt woes come two years after the unravelling of its competitor Evergrande.
“Officials in Beijing are doing their best to allay fears but their efforts at reassurance may fall on deaf ears for now as the crisis plays out”.
The other major cause for disquiet for the market, Mould argues, is interest rates.
“The minutes from the latest Fed meeting have thrown a cat among the pigeons by pointing to upside risks on inflation which might necessitate more rate hikes”.
He adds:“It feels like we’re in a constant back and forth between central banks and the markets, with the former having to constantly disabuse the latter of the notion the rate hiking cycle is at an end.”
From a purely UK perspective on interest rates AJ Bell head of investment analysis, Laith Khalaf, says:
“While the Bank may deem higher interest rates necessary to tame rampant inflation, the harsh irony is this heaps even more pressure on household budgets in the short term.
“Certainly, there appears little respite in view for those taking out a mortgage, and millions of people rolling off cheap fixed rate deals in the coming year will be in for a nasty shock”.
He continues: ““It’s worth nothing interest rates themselves don’t have to rise – simply the expectations of higher rates for longer can push fixed rate deals up. The latest unexpectedly strong wage growth data will continue to put pressure on the mortgage market as a result.”
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