According to the index for October, new home prices released yesterday saw prices in 69 out of 70 cities dropped from the previous month.
The drop overall was at 2.6%, double the print of September prices which indicated a dip of 1.3%. Sales volume had declined 1.3% during October.
This suggests we may still have a bit to go before the slump in prices bottom out, which could mean further pressure on sectors linked to real estate.
The property sector accounts for nearly 30% of the Chinese economy and has an impact on a range of industries spanning from construction to furniture.
Based on consensus projections for China’s growth over the next year, the market appears to be bracing for a slowdown. At the moment, expectations are for growth to come in just under 7% for 2015, which would be the slowest pace in nearly six years.
Impact on industrial metals
Amid weaker confidence over the demand outlook for copper, prices fell 1.3% and dipped back under $3/pound in late Tuesday trade. A new forecast released by Goldman Sachs yesterday also painted a gloomier picture. It cut its forecast for copper, expecting it to trade at $6,200 a tonne (some $2.80 a pound) instead of earlier estimates of $6,600 a tonne ($2.72 a pound).
Iron ore has also been under pressure and pushing a five-year low. Ore with 62% content delivered to Qingdao, China, fell 4.37% to $71.80 a dry tonne yesterday.
Traders expecting the slump to continue can also look at iron-related plays in the stock market such as Fortescue Metals. More than 90% of its revenue comes from China and any dent to the demand outlook will dampen investor sentiment on the stock.
Fortescue’s stock price dropped 6.6% on the poor Chinese property data yesterday, it’s down by over 50% over the past year. From a technical perspective on a weekly chart, the stock price looks poised to break under the support level of $2.79 and it could easily test the next potential floor at around $2.17 if the bearish momentum continues.