Country Garden share price is extremely cheap: buy the dip?

Country Garden (HKX: 2007) share price sell-off gained steam as concerns about the company’s future continues. The stock plunged to a low of H$0.69, the lowest level on record. It has dropped by over 95% from the highest level in 2018.

The next Evergrande

Country Garden, a leading Chinese real estate company, is on the verge of collapsing as demand slows and its debt burden mounts. With the firm making headlines for the wrong reasons, there is a likelihood that the situation will worsen.

Country Garden is facing substantial challenges. First, the company has a huge debt burden, which is estimated at almost $200 billion. This debt is slightly below that of Evergrande, which filed for bankruptcy last week. The firm has already defaulted on its obligations.

Second, Country Garden’s losses have surged in the past few years. After making some substantial profits in 2022, the company warned that its loss for the first half of the year will be over $7.6 billion.

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Further, the company needs billions of dollars to complete its stalled projects across the country. Recent statistics show that the company is building over 1 million homes in China. It will struggle to find financing to complete these homes.

The biggest challenge is that many customers with incomplete projects will pause making their payments. This is an important fact because of how China’s real estate is funded. Unlike in other countries, most people buy homes in advance and wait for their delivery.

Country Garden’s woes are compounded by the 4 Ds affecting the Chinese economy. These Ds are the country’s debt, decoupling, demographics, and demand. On debt, most people in China are now focusing on debt reduction as the economic growth slows.

Therefore, Country Garden’s collapse has close similarities to Evergrande, which collapsed in 2021.

Country Garden share price forecast

The daily chart shows that the Country Garden stock price has been in a freefall in the past few months. Most recently, it has moved below the lower side of the descending channel shown in black. The stock has also dropped below the important support level at A$0.98, the lowest level on October 22nd.

Country Garden share price has dropped below the 50-day and 200-day moving averages. Therefore, the outlook for the stock is still bearish. Like Evergrande, the company will likely suspend its shares to prevent the sell-off.

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