Evergrande liquidation fails to dent share market gains, as ASX nears record — as it happened

The Australian share market has extended a five-session winning streak on Monday, helped by gains in energy and real estate sectors.

The ASX 200 was up 23 points or 0.3%, to 7,578, which is just about 50 points shy of its all-time high recorded in August 2021.

Eight of the 11 sectors finished the session in the green, with energy (+1.7pc) and real estate (+0.9pc) sectors leading the gains.

Here are the top and bottom movers at close.

 By Kirsten Aiken 

The Business is back! However you watch it — whether on ABC TV, the ABC News channel, live on ABC iView or catching up when it suits you — the program kicks off again tonight.

Coming up on the first episode for the year:

• The 2024 economic outlook — we chat to  NAB’s chief economist Alan Oster and AMP’s deputy chief economist Diana Mousina about inflation, interest rates and the risk of recession
  
• We take a look at the incredible tech-led performance of the US stock market and ask Forager Fund's Steve Johnson whether the tech party can continue.
• And amid the clean energy battle between electrification and hydrogen, Emilia Terzon finds out why hydrogen powered cars are in the slow lane. 

Join us on ABC News at 8.44pm (not a typo), or after the late news on ABC TV. You can also catch The Business live or at a time of your choosing on ABC iView.

See you then.

The Evergrande property development empire is a massive tree to fall in the forest of Chinese developers, but its liquidation hardly caused a stir on share markets.

Hong Kong's Hang Seng index continues to trade around 0.9% higher, Shanghai is moderately in the black and only the Shenzhen market is in the red.

Saxo chief China strategist Redmond Wong says Evergrande's eventual demise has long been priced in to the broader market.

"The winding-up of Evergrande's Hong Kong listing entity has been widely anticipated and should not impact the general market much," he writes.

"The restructuring and winding up of developers are necessary for cleaning up the excesses in the Chinese property sector."

However, today's court decision doesn't mean the Evergrande saga is over.

"For overseas creditors, their focus will be on whether the liquidator will succeed in obtaining assistance from mainland (Chinese) courts to seize assets in the mainland," he adds.

"The liquidator will need to first apply to the Hong Kong court to issue a letter of request to mainland courts in Shanghai, Shenzhen, and Xiamen under the pilot cooperation mechanism established in 2021. The level of assistance that the liquidator receives will be a litmus test for the mechanism.

"For shareholders of the listed company in Hong Kong, the likelihood of obtaining anything from the winding-up process is very low."

Before being suspended from trade, China Evergrande Group shares had fallen nearly 21% in Hong Kong to be worth just 16.3 Hong Kong cents.

They were worth more than $HK25 as recently as July 2020.

Chinese equities led a rally in Asian stocks to start the week, after regulators took new steps over the weekend to support the market.

On Sunday, China's securities watchdog said it would suspend the lending of lock-up shares for short selling starting Monday.

The regulator will also slow the process of share lending in the securities refinancing market from March 18.

Hong Kong's Hang Seng jumped 1.1% on Monday.

Regional stocks had already started the day on a firm footing, but extended gains after the Hong Kong open, with Japan's Nikkei gaining 1% and South Korea's Kospi advancing 1.2%.

Mainland China blue chips, however, were little changed after seesawing in early trade.

Australia's most popular car manufacturer is pushing hydrogen fuelled vehicles.

Some energy economists say Toyota's bet isn't paying off and our government shouldn't waste money on fuelling infrastructure.

You can listen to this story here.

Here is a short video by business reporter David Chau on how the Evergrande story unfolded and how China's property crisis affects Australia.

A provisional liquidator and then an official liquidator will be appointed to take control and prepare to sell the developer's assets to repay its debts.

The liquidators could propose a new debt restructuring plan to offshore creditors holding $US23 billion of debt in Evergrande if they determined the company had enough assets or if a white knight investor appeared.

They would also investigate the company's affairs and could refer any suspected misconduct by directors to Hong Kong prosecutors.

Evergrande could appeal against a liquidation order, but the liquidation process would proceed pending appeal.

But how much debt might creditors recover?

Evergrande cited a Deloitte analysis during a Hong Kong court hearing in July that estimated a recovery rate of 3.4% if the developer were liquidated.

However, after Evergrande said in September its flagship unit and its chairman Hui Ka Yan were being investigated by the authorities for unspecified "illegal crimes", creditors now expect a recovery rate of less than 3%. 

While a winding-up of the developer with $US240 billion of assets would send shockwaves through already fragile capital markets, experts said it would not offer a blueprint on how liquidation might unfold for other embattled developers.

Given the sheer size of Evergrande's projects and debt, the process would involve many authorities and political considerations.

Completing ongoing home construction projects will be a top priority for the company, the sector and the government. 

A Hong Kong court has ordered the liquidation of China Evergrande, a move likely to send ripples through China's financial markets as policymakers scramble to contain a deepening crisis.

Evergrande, the world's most indebted property developer with more than $450 billion ($US300b) of liabilities, defaulted on its offshore debt in late 2021 and has become emblematic of a debt crisis that has engulfed China's property sector.

Shares of Evergrande have been suspended following a 20% dive on Monday.

The petition for liquidation was filed in June 2022 by investor Top Shine Global Limited of Intershore Consult (Samoa) Ltd.

Australian shares rose marginally in afternoon trade, with the gains in energy and financials stocks outweighing the miners' losses, while investors looked out for clues on interest rate policy ahead of the US Federal Reserve's meeting later in the week.

The ASX 200 was up 0.2% at 7,574 by 1:08pm AEDT. The benchmark gained 1.8% last week.

Financial stocks rose as much as 0.6% to their highest level since May 2017. The big four banks added between 0.6% and 0.8%.

Energy stocks climbed more than 1.7%, as oil prices jumped 1% on fuel supply concerns after a missile struck a Trafigura-operated fuel tanker in the Red Sea.

Sector majors Woodside Energy and Santos gained 2.3% and 2.2%, respectively.

Heavyweight mining stocks fell 0.3%, with sector major BHP losing 1.1%.

Gold stocks fell as much as 1.3%.

Top grocer Woolworths forecast a non-cash impairment of $NZ1.6 billion in its 2024 interim results, as its New Zealand business faces challenges. Its shares were last down 0.5%.

Bapcor rose as much as 6.3% and was the top gainer in the benchmark index after the automotive parts provider forecasted higher half-year revenue.

Meanwhile, Gold Road Resources slipped 15% and was the top laggard in the benchmark index, after the gold miner posted a sequential drop in quarterly gold production.

Construction activity and a strong job market have helped South Australia ascend to the top of the economic performance leaderboard, according to CommSec’s quarterly State of the States report.

This is the first time South Australia has ranked No.1 in the report’s 15-year history.

The State of the States report examines eight key economic indicators – real economic growth, unemployment, construction work and dwelling starts.

"Population growth in South Australia has tripled over the past two years, which is showing up in a strong housing market and overall economic activity," CommSec's chief economist Craig James said.

"However, South Australia can’t rest easily. It is likely the state will face challenges from NSW and Victoria in the period ahead. 

"We have also looked at annual changes in economic indicators as a useful measure of economic momentum and the report shows strong economic momentum by Western Australia, with Queensland, Victoria, NSW and South Australia not far behind."

State and territory highlights

• South Australia ranked first on four indicators, including construction work done and unemployment
• Victoria ranked second or third on three of the eight indicators, including retail spending
• NSW also ranked second or third on four of the eight indicators, including unemployment
• Western Australia ranked first on relative population growth.
• Tasmania ranked first on equipment spending
• The ACT ranked first on retail spending
• Queensland ranked first on home loans
• The Northern Territory ranked second on relative population growth

You can read the full report here.

• ASX 200: +0.2% to 7,572 points
• Australian dollar: +0.2% to 65.84 US cents
• S&P 500: -0.1% to 4,891 points
• Nasdaq: -0.4% to 15,455 points
• FTSE: +1.4% to 7,635 points
• EuroStoxx: +0.7% to 469 points
• Spot gold: +0.3% to $US2,023/ounce
• Brent crude: +0.7% to $US84.15/barrel
• Iron ore: -0.3% to $US135.00/tonne
• Bitcoin: +0.2% to $US42,054

Prices current around 12:00pm AEDT

Live updates on the major ASX indices:

The Future Fund is Australia's sovereign wealth fund, the government's version of saving for a rainy day.

According to its website, the fund is currently managing more than $270 billionof taxpayer money.

The main aim when it was set up was to fund the Commonwealth's superannuation liabilities from the era when public employees received defined benefit pensions based on their previous income, rather than the current system where public sector employees have defined contribution schemes and only get their investment earnings, the same as pretty much everyone else.

The Future Fund now also manages a range of other government funds, such as the Housing Australia Future Fund, Medical Research Future Fund, DisabilityCare Australia Fund, Disaster Ready Fund and more.

So chairing the fund is a pretty big deal.

A note from the Commonwealth Bank's head of Australian economics Gareth Aird about the likely effects of the stage 3 tax cut changes proposed last week by the Albanese government.

Aird noted that, because they were legislated five years ago, the economic stimulus from the tax cuts has already been factored in to inflation forecasts by economists, including at the Reserve Bank.

He pointed out that the tax cuts will now be only "a touch larger" than the original stage 3 plan, meaning the macroeconomic impact is likely to be marginal.

"A case can be made that a greater share of the income tax cuts will now be spent than we previously assumed given the skew has shifted towards lower and middle income earners. But the overall changes are not enough to shift the dial for economic growth, the labour market or inflation," he wrote.

"For example, if we now assume that all of the tax relief is spent due to the distributional changes of the tax cuts, the additional consumption relative to our forecasts is just ~$A4 billion or 0.15% of GDP a year ; a rounding error in a $A2.6 trillion economy. Importantly, changing the spending assumption has no discernible impact on our inflation forecasts."

Furthermore, Aird says Australians will still be paying a very high share of income in tax even after the rejigged state 3 cuts.

"The quarterly amount of income tax payable is up by a whopping 23.4%/yr to Q3 23 (latest available). Over the same period total household income has grown by a much lower 7.5%," Aird observed.

"As a result, tax paid as a share of household income has risen sharply to a record high of 17.7%. We forecast that this ratio will continue to lift to ~19% by Q2 24.

"On our calculations the tax cuts that arrive on 1 July 2024 will drop the tax paid to income ratio to a still very high 18%.

"Put another way, households will still be handing over a much higher proportion of their income to the Government than they were in 2022 and the years prior. This is a handbrake on consumption and demand growth in the economy more broadly."

China Evergrande goes back to a Hong Kong court on Monday in a high-profile case to decide whether to liquidate the Chinese property developer that has been at the centre of a spiralling debt crisis in the world's second-biggest economy.

Evergrande, the world's most indebted developer with more than $US300 billion of total liabilities, sent a struggling property sector into a tailspin when it defaulted on its debt in 2021.

The liquidation process could be complicated, with potential political considerations, given the many authorities involved.

But it is expected to have little impact on the company's operations including home construction projects in the near term, as it could take months or years for the offshore liquidator appointed by the creditors to take control of subsidiaries across mainland China — a different jurisdiction from Hong Kong. 

Evergrande had been working on a $US23 billion debt revamp plan with the ad hoc bondholder group for almost two years.

Its original plan was scuppered in late September when it said its billionaire founder Hui Ka Yan was under investigation for suspected crimes.

The winding-up proceedings have been adjourned multiple times and Hong Kong High Court Justice Linda Chan has said previously the December hearing would be the last before a decision was made whether to liquidate Evergrande in the absence of a "concrete" restructuring plan.

• ASX 200: Flat at 7,557 points
• Australian dollar: Flat at 66.75 US cents
• S&P 500: -0.1% to 4,891 points
• Nasdaq: -0.4% to 15,455 points
• FTSE: +1.4% to 7,635 points
• EuroStoxx: +0.7% to 469 points
• Spot gold: +0.1% to $US2,021/ounce
• Brent crude: +1% to $US84.35/barrel
• Iron ore: -0.3% to $US135.00/tonne
• Bitcoin: +0.1% to $US42,018

Prices current around 10:45am AEDT

Live updates on the major ASX indices:

 The Australian share market is living up to what the futures market hinted at, with a very modest gain in early trade.

The ASX 200 was up 0.2% to 7,571 points by 10:26am AEDT, with a 1.6% jump for energy stocks and 0.8% rise in industrials leading.

The tech and mining sectors were the two biggest drags.

Tech because of a Wall Street Nasdaq sell down on Friday, mining largely because The Big Australian was in the red.

BHP was off 1.3% to $46.94 in the first half hour of trade, as it updated the market on Friday about the progress of various multi-billion court claims related to a tailings dam collapse in Brazil in 2015 that killed 19 people and destroyed the homes of hundreds more.

Overall, the Federal Public Prosecution Office of Brazil is seeking damages of up to 155 billion Brazilian reals ($48 billion) related to the collapse of the dam at a mine 50/50 owned by BHP and Brazilian mining giant Vale.

Media reported that the Federal Court of Brazil has issued a decision quantifying the "collective moral damages" from the dam collapse at nearly 47.6 billion reals ($14.7 billion), however BHP said in its market statement that it hadn't been served with the decision.

In its last annual report, BHP said it had set aside $US3.7 billion ($5.6 billion) in provisions to cover potential compensation from the dam failure.

Elsewhere on the market, gold miners, uranium miners and tech stocks were some of the biggest losers.

While the Treasurer's press conference was called to announce the Future Fund appointments, he was keen to take the chance to spruik the government's revised stage 3 tax cuts.

"Bigger tax cuts for more people, everybody still gets a tax cut," was Jim Chalmers' punchline.

"By dropping two rates, and by lifting two thresholds, we are giving everyone a tax cut, we're delivering $359 billion worth of tax relief [over a decade], and we're returning bracket creep where we can do the most good, which is middle Australia."

With the tax take jumping thanks to inflation super-charging bracket creep over the past couple of years, Dr Chalmers was asked if there might be further tax cuts in the pipeline.

He ducked that question by responding that the government was currently focused on getting this proposal passed by parliament.

"A very important number is the average tax rate goes from 25.5% this year, to 23.9% next year. We're getting the overall tax burden down," he said.

#ICYMI I spoke to a few leading economists about their views on the government's stage 3 tax changes for this article on Friday.

The current Treasurer Jim Chalmers had this to say about one of his predecessors at the head of the Commonwealth's economic management.

"I want to thank Peter Costello for his role in establishing the Future Fund, but also for his leadership and his contribution to the board over the past 14 years," he told reporters.

"I wanted to thank John Fraser, who left the board late last year, and John Poynton, about to leave the board."

As treasurer, Mr Costello was the driving force behind setting up the Future Fund.

Former ACTU secretary and Labor minister Greg Combet has been appointed to chair the Future Fund's board for the next five years.

He'll take over from Peter Costello, who of course was treasurer during the Howard Liberal government.

Treasurer Jim Chalmers, who made the announcement, was keen to emphasise Mr Combet's previous experience beyond union and parliamentary politics.

"He's been the chair of IFM investors, he served as the trustee of Australian Super, he has been the minister for climate change and energy, as you know, and he also served on the executive board of the National COVID-19 Coordination Commission, appointed by the previous government," Mr Chalmers said.

"Greg is currently the chair of the Net Zero Economy Agency, and we'll work with the agency and obviously with minister Bowen to recruit a new chair."

However, Dr Chalmers said Mr Combet won't start straight away.

"He has more work to do at the Net Zero Economy Agency first before he joins the Future Fund board around the middle of the year. In the interim, the government has appointed Mary Remst as acting chair of the future fund, and Mary will start in this position on 4 February 2024."

Dr Chalmers said the government has also appointed Nicola Wakefield Evans and Rosemary Vilgan to the Future Fund board for five-year terms.

"It will increase the representation of women on the Future Fund, and continue the government's really strong track record of appointing women to senior roles in Australia's most important economic and financial institutions," the Treasurer said.

"Rosemary has a strong background in investment and a broad range of experience in executive and non-executive roles. Rosemary will begin on the board in February.

"Nicola has extensive experience in capital markets, corporate finance, the energy sector and corporate law. And she'll begin on the board in March."