Home » Understanding Evergrande collapse contagion risk to global markets financial news

Understanding Evergrande collapse contagion risk to global markets financial news

Jeff Moon, fmr. assistant USTR for China affairs, & Ben Harburg, MSA Capital managing partner join ‘Squawk on the Street’ to explain how China may deal with a potential Evergrande collapse and how foreign investment will be impacted. For access to live and exclusive video from CNBC subscribe to CNBC PRO:

A liquidity crisis at a large Chinese property developer has shaken global markets, and strategists say it could send ripples across the global economy.

But they also say the issue will likely be contained by the Chinese government before it wreaks damage in the banking system, and it is not expected to lead to a broader global financial contagion.

The critical question for investors is how and when do leaders in Beijing handle the situation and whether they launch a restructuring of China Evergrande Group, as many market pros expect.

Investors have worried that Beijing is likely to let the company fail, wounding stockholders and domestic bondholders. Evergrande faces a debt payment on its offshore bonds on Thursday, after it said last week it was facing unprecedented difficulties.

“Everyone was expecting the government would have some kind of resolution, given that Evergrande is a systemically important company,” said Jimmy Chang, chief investment officer at Rockefeller Global Family Office. “It has $300 billion in outstanding debt. There is a contagion issue if China Evergrande is not resolved. I think it will end up having some deep-pocketed state-owned enterprises to take over.”

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Market pros don’t think that Evergrande could lead to the next financial crisis, but it could lead to more volatility.

“The hard thing about particularly understanding China is that it is an opaque system and oftentimes you don’t have answers until you get answers,” said Rick Rieder, chief investment officer of global fixed income at BlackRock.

“The banking system tends to be controlled by the government,” Rieder added. “There is government intervention that presumably would come in. I think for a period of time, when you wrap this into everything else there, there’s near-term financing questions around some of the other property entities, and when that happens then it can create some volatility and some financial contagion. My sense is the government will act, and my sense is it will stabilize.”

Rieder said there could be some caution around Chinese property companies and multidisciplinary companies for a period of time.

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There is concern the already slowing China economy will be affected further and that could flow into other economies.

Chang said the Chinese government needs to act quickly since Evergrande is beginning to affect sentiment, after being ignored by global markets.

“It could be a self-fulfilling prophecy. This liquidity issue — real estate is so important to the Chinese economy and the financial well-being of so many Chinese families. Homeownership is over 90%,” said Chang. “So many people buy apartments as an investment, so if this thing is not contained, it could become a real black swan.”

The fact that China’s economy is so large could affect the rest of the world, Chang added. “If China were to have a serious economic issue because of China Evergrande, the rest of the global economy would have contagion from it.”

The Dow Jones Industrial Average ended Monday’s trading session down more than 600 points after steep stock market declines in Europe and Hong Kong and other parts of Asia. The 10-year Treasury yield, which moves opposite price, slid as low as 1.297% as investors sought safety in bonds.

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22 thoughts on “Understanding Evergrande collapse contagion risk to global markets financial news”

  1. The Diplomat had a good article on Bankers Acceptance Notices (BANs) in their December 2013 edition. Basically a story how China's regional banks were skirting Central Bank's loan regulation by issuing BANs to provincial real estate developers and how risky it all was. Fast forward to 2021 and the chickens are coming home to roost.

  2. #BohaiCapitalHolding fabricated its 20 trillion yuan worth of assets with lies and fraudulent appraisals; HNA managed to grow 20,000 times a day by swindling the Lao Baixing’s money and fraudulent accounting. #evergrande and HNA employ the same scam – taking away 1,000 yuan from every 10,000 yuan defrauded out of the Lao Baixing; The state-owned real estate companies profit by taking kickbacks, while the private enterprises rely upon laundering money to the overseas

    Unfortunately foreign investors, banks, hedge funds etc could not resist the get rich quick schemes, and high yield profits, globalism means that when the ship hits the iceberg every one sinks!

  3. The big problem is NOT Evergrande's collapse. It's what happens if that collapse causes other Chinese real estate companies to collapse, which could start taking down China's Big Four banks. A failure of any of the Big Four banks will have a devastating financial impact worldwide.

  4. Here come the repo men! They will tear every vending machine, oven, shelf, computer, spare building and auction it off and if they can't they will sell it as scrap! They will knoch the whole building down and sell the concrete as filler and the steel to developing countries!

  5. A guest on The Wall Street Journal Report spoke sometime last week about making over $631,000 in 4months with a capital of $100,000, which made me realize that as a beginner i have alot to learn, so please assist me with any pointers or tips that would help me make this much profit.

  6. In stock market you need knowledge to identify the right business, courage to buy in good quantities and patience to hold it for long term.compounding will happen over the period of time.

  7. ,.,,.,,AMAZON:
    Yep, I bought a ton on the dip. It's getting cheaper relative to its current earnings (half compared to last year).
    …With the Delta virus coming at full speed ahead, pandemic sales will make a comeback.

    Amazon's not going anywhere so I know that eventually it will come back.
    Fidelity considers Amazon as a large growth company (probably because as big as it is, it still only has 7% of the retail market)

    buying via Amazon Smile donations donates some money to my favorite charity too!

    Get on board or be runover, it's up to you.

  8. Nothing to do with me, I don’t do business with communists. I already bought the supplies I need for the whole year , made in USA n japan ❤️

  9. #Covid_vaccine has the structure of HIV same as covid 19 virus to deceive your immunity system to create T-Cell perish together with the virus(just like overclocking immunity system temporarily), but unable to deceive the new covid 19 variant, the virus will permanently stay at human body's T-Cell then cause it malfunction to duplicate, destroy and spread even you have fully recovered from covid infection or fully vaccinated.

    Covid vaccine is a resistance of covid virus to create new variant, it only able to hide the symptoms after get infected, at the same time to enhance your immunity system to against the virus temporarily like 'MURPHY', "against the virus not eliminated", currently the opportunity to the death of having vaccine injection is less due to it's ineffectiveness since vaccine maker has been modified it to be safe. Vaccine manufacturer can be sued now after FDA fully approve those vaccine, this is great liberty status evolution. A lot of people death or having long term adverse reaction in vaccination before, and the government still keep hiding the truth. _2

  10. No one should ever use the word understand, no one should ever watch a video with understand in the subject line, this video is bs, its all coming down be ready, china is flooding and the people have mo energy of food

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