Evergrande's crisis - potential affect on US economy

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F150HD
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Evergrande's crisis - potential affect on US economy

Post by F150HD »

Busy day. Catching up on events.

how will/could this failure affect the US economy both short and long term?

https://www.foxbusiness.com/markets/chi ... r-property

Evergrande's crisis is being compared to collapse of Lehman Brothers


https://www.npr.org/2021/09/20/10389443 ... ks-selloff

...The Evergrande Group owes roughly $300 billion, and investors fear a default could destabilize the financial system in China, one of the world's top economies.
jarjarM
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Re: Evergrande's crisis - potential effect on US economy

Post by jarjarM »

Evergrande's debt load is ~2% of China's GDP. But the bigger problem is the fire sale of its properties that will drag down the overall pricing in 2nd/3rd tier cities and thus spread the issue to other property developers. Real estate development is one of the biggest in Chinese's economy, I once heard that 50 out of the top 100 firms there are real estate focused so a significant default of one their biggest developer will ripple through. Also, evergrande is the biggest high yield dollar bond issuer in Asia so that'll impact many international firms that's being chasing high EM yield. Of course, commodities exporters like Australia will also be significantly impacted.

The question now is how will Chinese's govt rescue evergrande since it's very unlikely that they will just let evergrande fail outright.
jarjarM
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Re: Evergrande's crisis - potential affect on US economy

Post by jarjarM »

Forgot to add that Evergrande is also a big issuer of wealth management product (WMP) which is in the "shadow banking system" and exposure is not yet fully known to analyst.
staustin
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Re: Evergrande's crisis - potential effect on US economy

Post by staustin »

jarjarM wrote: Mon Sep 20, 2021 8:16 pm Evergrande's debt load is ~2% of China's GDP. But the bigger problem is the fire sale of its properties that will drag down the overall pricing in 2nd/3rd tier cities and thus spread the issue to other property developers. Real estate development is one of the biggest in Chinese's economy, I once heard that 50 out of the top 100 firms there are real estate focused so a significant default of one their biggest developer will ripple through. Also, evergrande is the biggest high yield dollar bond issuer in Asia so that'll impact many international firms that's being chasing high EM yield. Of course, commodities exporters like Australia will also be significantly impacted.

The question now is how will Chinese's govt rescue evergrande since it's very unlikely that they will just let evergrande fail outright.
bloomberg asia earlier covered evergrande with two senior fixed income analysts both of the opinion the govt will not transfer the debts of the firm to the govt through a bailout.. instead, they'll allow the company to restructure through bankruptcy, pushing state firms to extend maturities. but, a bailout of that magnitude is looking unlikely. there will definitely be an impact.
alex_686
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Re: Evergrande's crisis - potential effect on US economy

Post by alex_686 »

staustin wrote: Mon Sep 20, 2021 8:28 pm bloomberg asia earlier covered evergrande with two senior fixed income analysts both of the opinion the govt will not transfer the debts of the firm to the govt through a bailout.. instead, they'll allow the company to restructure through bankruptcy, pushing state firms to extend maturities. but, a bailout of that magnitude is looking unlikely. there will definitely be an impact.
Has a major Chinese firm every gone bankrupt? I know that they have laws on the books for reorganization but I don't think they have ever been put to the test.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
staustin
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Re: Evergrande's crisis - potential affect on US economy

Post by staustin »

well... a fair question. a number of chinese state firms defaulted this past year and a bankruptcy law exists. but, no idea to what extent it's similar to our process or how creditors were treated.
BogleHead1008
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Re: Evergrande's crisis - potential affect on US economy

Post by BogleHead1008 »

The way I heard Evergrande's top echelon are not in bed with Chinese communist party, which means the pain will continue and probably some heads will literally roll into the stockade.
smectym
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Re: Evergrande's crisis - potential affect on US economy

Post by smectym »

This looming restructuring, or whatever form it may take for Evergrande, has been on the radar screen forever, and catches neither CCP nor any significant “stakeholder” by surprise. So I doubt it will be a “Lehman Event” precipitating a real crisis unless new, unanticipated dominoes start to fall.
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galeno
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Re: Evergrande's crisis - potential affect on US economy

Post by galeno »

Keeping an eye on our main indices: TWSM and TWBM.

VWRD holds 4% Chinese equity.

AGGG holds 7% Chinese bonds (yuan).
KISS & STC.
Virus4762
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Re: Evergrande's crisis - potential effect on US economy

Post by Virus4762 »

jarjarM wrote: Mon Sep 20, 2021 8:16 pm But the bigger problem is the fire sale of its properties that will drag down the overall pricing in 2nd/3rd tier cities and thus spread the issue to other property developers.
I don't know about that. If Evergrande has received payment for over 1 million unfinished properties that kind of implies that they have no finished properties for sale / in inventory (why would someone buy an unfinished property if they could buy an already finished one?). Do you have any sources showing that Evergrande might flood the market with cheap properties or any sources that show that Evergrande currently has any finished properties in inventory at all?
jarjarM
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Re: Evergrande's crisis - potential effect on US economy

Post by jarjarM »

Virus4762 wrote: Tue Sep 21, 2021 5:38 pm
jarjarM wrote: Mon Sep 20, 2021 8:16 pm But the bigger problem is the fire sale of its properties that will drag down the overall pricing in 2nd/3rd tier cities and thus spread the issue to other property developers.
I don't know about that. If Evergrande has received payment for over 1 million unfinished properties that kind of implies that they have no finished properties for sale / in inventory (why would someone buy an unfinished property if they could buy an already finished one?). Do you have any sources showing that Evergrande might flood the market with cheap properties or any sources that show that Evergrande currently has any finished properties in inventory at all?
Here's the source, bloomberg is reporting they're considering all options. Evergrande still have some finished properties on hand in Shenzhen. Though other news reported I had read that majority of their current valuable holding in core business are in the form of land holding, ~30% in tier 4/5 cities with many are non residential space like parking and store fronts. The quality of their holding is relatively lower quality than that of other China developers. The most valuable part right now is really their redevelopment right to certain older areas in Shenzhen.

https://www.bloomberg.com/news/articles ... woes-mount
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Re: Evergrande's crisis - potential affect on US economy

Post by Alex Frakt »

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