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People standing in front of an electronic display showing the Hang Seng Index in the Central district of Hong Kong on July 26, 2021, after stocks plunged as tuition firms were hammered by China’s decision to reform the private education sector by preventing them from making profits.

Isaac Lawrence | AFP | Getty Images

Hong Kong’s benchmark stock index closed in bear market territory, down 2.1% in the Friday session and more than 20% below the highs of January, as uncertainty over China’s property market and growth prospects erase early-year gains.

The further losses on Friday came after news that embattled Chinese real estate giant Evergrande had filed for bankruptcy protection in a U.S. court.

The company sought protection under Chapter 15 of the U.S. bankruptcy code, which shields non-U.S. companies that are undergoing restructuring from creditors.

Friday’s plunge for the Hang Seng index saw some of the region’s largest companies close in the red, with Tencent down 2.34%, Alibaba down 3.44% and HSBC shedding 1.1%.

A bear market is a prolonged downturn in prices that sees a broad market index drop at least 20% from its most recent peak. The Hang Seng index closed at 17,950.85 on Friday, down 20.88% from the 22,688.9 of Jan. 27.

Russ Mould, investment director at AJ Bell, said the filing in itself would have prompted “some alarm in isolation,” but combined with peer Country Garden’s decision earlier this week to suspend payments on some of its bonds from Monday, “the words ‘dominos’ and ‘falling’ start to come to mind.”

JPMorgan on Tuesday raised its emerging markets corporate high-yield default forecast primarily due to rising contagion fears around China’s property sector, which the Wall Street bank expects to account for nearly 40% of all default volumes in 2023.

Evergrande fell into default in 2021 and announced an offshore debt restructuring program in March this year, but Country Garden has a larger and broader portfolio of property developments.

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