Today, due to China's financial woes, markets are in the red, including crypto markets.
The main problem is the possible bankruptcy of the real estate giant Evergrande, caused by an excess of debt that the company is unable to repay.
Evergrande in danger from the financial crisis
In China, the real estate bubble that has swelled in recent years now seems to have burst, and bad debts (NPLs, non-performing loans) are also on the rise, so there is a serious risk that the Evergrande case could trigger a deep financial crisis in the Country.
But according to some analysts the situation would be less serious than it might appear.
The fact is that global financial markets still haunt the specter of the Lehman Brothers bankruptcy, which occurred in September 13 years ago, which triggered a real generalized collapse of the financial markets. But the current Chinese situation would appear to be different.
According to Barron's , China is planning a sort of "controlled implosion" for Evergrande, in order to avoid the collapse of the entire financial system.
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| China financial market crisis |
The hypothesis under consideration would prevent Evergrande's bankruptcy from emulating that of Lehman Brothers, and would limit the problem to the real estate sector.
Evergrande has $ 300 bilion in debt, and the crack seems imminent for the past couple of weeks. The company had to unilaterally reschedule its debt payments, in agreement with Chinese regulators, in order to effectively restructure its debt, and this move is seen as a good thing, even by investors themselves concerned about their credits.
Barron's writes:
"Debt negotiations will buy time for an orderly disintegration of Evergrande, rather than an anarchist crack-up in a country with few great bankruptcy records."
According to T. Rowe Price's lead manager for emerging market corporate bonds, Samy Muaddi, this solution would not undermine the financial stability of the entire country.
If so, no, and the financial markets will not be overwhelmed.
Against a loss of more than 84% of the value of Evergrande stock on the Hong Kong stock exchange since the beginning of the year, the same stock exchange as a whole 12%, so at least for now it seems to be holding the brunt of this colossal failure.
However, the Chinese real estate market could be affected, and since it is one of China's most important domestic manufacturing sectors, the problems may not end with the controlled implosion of Evergrande.
For now, however, the contagion does not appear to have spread, as evidenced by KraneShares Asia Pacific's high-yield KHYB real estate ETF, which gained 1.4% in the past six weeks.
However, a "crackdown" on the Chinese real estate sector is expected, with more government interventions that could prevent the collapse of the entire system.