Monday witnessed a sharp fall in the stock markets across various countries on the fears of the Evergrande group collapsing. The question that moved around the trading desks worldwide was how the most indebted Chinese developer group would eventually contain the crisis.
According to Bloomberg sources, investors rushed to offload their risks in anticipation that president Xi would not be able to stem the slide of China’s real estate market without derailing the Chinese economy.
Very few risky assets were untouched in the Monday market sell-off. The Hang Seng index, the Hong Kong indices, a crucial barometer in the Asian market, tumbled more than 3%, led mainly by real estate stocks. European equity benchmarks suffered equally, with Italy and Germany reporting a 2% slide while the US S&P 500 index fell by 1.70 %, its biggest fall in the past four months. The intraday slump of nearly 12% in the Chinese iron ore market, along with the average low of junk-rated dollars from Chinese borrowers, made matters worse. The overall sentiment was down, with many Asian markets closed on Monday.
Evergrande group has the highest liabilities in the world, at around $300 billion.
This is more than any other property developer globally. With 16% outstanding notes in China’s high yield dollar bond, Evergrande needs to pay an interest of $38.50 million on the five-year dollar bond every Thursday and another $36 million (232 million yuan) on an offshore bond the same day. The failure to pay within 30 days will lead to Evergrande becoming a defaulter. It is the unseen Whale in this market.
According to Bloomberg, Goldman economists led by Hui Shan wrote on Sunday that “The policymakers in China are showing no signs of deleveraging the real estate market, the property market may deteriorate further unless the government provides a clear road map towards resolution.“
Analysts from Goldman Sachs called out Chinese authorities to send a clear message to the markets on how they intend to stop the Evergrande group from causing spillover into the broader economy. The Citgroup Inc. has observed that overtightening of policy is erroneous, while Economists at Société Générale SA feels that there are 30% chances of a “hard landing.” The market turbulence and worldwide concerns may force or pressure the Chinese leadership to halt policy tightening or take steps to contain the fallout.
The Chief Economist for North Asia and Greater China, Ding Shuang, at Standard Chartered Plc, Hong Kong, feels that many people do not expect the Evergrande group to collapse suddenly. They are panicking due to the lack of any action from the Chinese policymakers. However, he expects China to come out with some verbal support soon which will help to stabilize market sentiments.
The Chinese authorities have made no official statement on resolving the crisis or the state stepping in to stabilize the domestic stock markets. So far, they have only pumped in 190 billion Yuan into the banking system over the weekend, as reported by Bloomberg.
On Monday, during the intraday low, Evergrande lost 19% before recovering to end the day at 10% lower.