Executive of China Evergrande Subsidiary Arrested... Stock Price Drops 24%

Fell to 0.47 Hong Kong Dollar on the 18th
Stock Trading Hits Lowest in 2 Weeks
Bad News Including Real Estate Crisis and Arrest Reports Accumulate

As news emerged that Chinese public security authorities arrested an executive of a financial affiliate acting as a funding source for the major real estate developer Evergrande Group, Evergrande's stock price fell to its lowest level in two weeks since the resumption of trading.

On the 18th at the Hong Kong Stock Exchange, Evergrande's stock price once recorded HKD 0.47 (7,961.80 KRW) during the session, down 24% from the previous closing price of HKD 0.62. This is the lowest level since Evergrande resumed stock trading after 17 months on the 28th of last month.

The news of the affiliate executive's arrest and concerns about the health of China's real estate market influenced the stock price decline. Public security authorities in Shenzhen, southern China, announced via China's messenger app WeChat the day before that they had arrested two individuals surnamed Du and others related to Evergrande Financial Wealth Management Company. Although the specific charges and personal details of the two arrested individuals have not been clearly disclosed, China's economic media Caixin explained that the 'two individuals named Du' mentioned in the public security notice are undoubtedly Du Liang (杜亮), the company's CEO.

Evergrande Financial Wealth Management is an affiliate wholly owned by Evergrande Financial Holdings, which is under Evergrande Group. It has served as a funding channel for companies related to Evergrande Group. However, in 2021, it caused a crisis where hundreds of thousands of investors could not recover their investments after failing to pay for asset management products (WMP) worth 40 billion yuan (approximately 7.3 trillion KRW).

Concerns about the Chinese real estate market also affected Evergrande's stock price decline. As fears grew that a chain default crisis would spread in the market, such as Country Garden, a major Chinese real estate developer, failing to pay interest on corporate bonds, foreign capital has been rapidly withdrawing from Chinese and Hong Kong stock markets. According to Bloomberg, the outflow of funds from the Chinese stock market over the past month reached a record high of 12 billion USD.

Amid growing unease about the real estate market, as of 4 p.m. that day, the Hang Seng Mainland Properties Index (HSMPI), which tracks the stock prices of Chinese real estate companies listed in Hong Kong, recorded 1,620.31, down 1.59% from the previous closing price of 1,646.45. The Hang Seng China Enterprises Index (HSCEI), composed of blue-chip Chinese state-owned enterprises listed on the Hong Kong Stock Exchange, also recorded 6,241.89 at the same time, showing a 1.07% decline compared to the previous day.

Bloomberg analyzed, "Although recent Chinese economic indicators have slightly improved, concerns about the real estate market have outweighed optimistic forecasts for an economic rebound," adding, "Due to worries about the health of real estate companies, stocks of Chinese companies listed on the Hong Kong Stock Exchange started the week on a downward trend."