Investors are hoping for an orderly liquidation of China. Stock marketers took hold of Chinese stocks on Monday, stocks were also in demand and rose by more than eight percent. Analysts assume that the government will rush to the aid of the second largest Chinese real estate developer in China and protect the entire financial system from possible domino effects.
Evergrande has over $ 300 billion in debt and has defaulted on customers, banks and bondholders.
“The authorities will try to prevent Evergrande’s problems from harming the company’s home buyers, suppliers and contractors,” said rating agency analyst Michael Taylor. However, the economic consequences of Evergrande’s debt problems should not be underestimated.
The company’s crisis could make it harder for real estate firms to access credit, affect asset quality at certain banks, and weaken the overall real estate market in China, which is a major driver of economic growth.
A loss of confidence in the real estate sector could lead to a massive decline in property purchases, explained the experts at asset manager Muzinich & Co. “If the political decision-makers are ready to let Evergrande go into controlled bankruptcy, they should also be ready to calm the market to avoid a crisis of confidence, ”said portfolio manager Warren Hyland. Experts at the US bank JPMorgan also assume that the government in Beijing will try to keep the effects of a possible Evergrande collapse in check.
The Chinese central bank again pumped $ 15.5 billion into the financial markets on Monday after injecting three times as much last week. According to media reports, several local governments in China have set up special depots for Evergrande real estate projects.
This is to ensure that the money is used for housing projects and not for other things, such as paying off debts. Evergrande let a deadline for the bond interest expire on Friday.
The problems of the real estate group are increasingly affecting associated companies. The subsidiary New Energy Vehicle Group warned of a liquidity squeeze on Friday after the stock market closed, the shares temporarily collapsed by 26 percent on Monday.
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A strategic investment or a sale of assets are necessary to pay employees and suppliers and to maintain production, the company said. The construction work on a football stadium in China’s Guangzhou province, however, continued as planned, said a company spokesman.
How high is your crash risk in the depot? Banks and financial groups have invested their own or customer funds in Evergrande.