Evergrande is something that most of you will have heard about lately, and if you haven’t… you should get the know about it.
This has been one of the main causes of the latest sell off in markets. Its affecting all financial markets from the stock market to the crypto market right now.
I want to explain why that’s the case and what impact it might have going forward…
What is Evergrande?
For anyone who has never heard of Evergrande or maybe has heard it but isn’t sure what it is…
Evergrande is Chinas 2nd largest Real Estate developer and 122nd largest company in the world.
They employ over 120,000 people.
They have over 1,300 building projects in China.
And importantly, they also have some of the largest company debt in the world…
They owe approximately 300 BILLION dollars. And can’t afford to pay it back…
So What Does It All Mean & Why Is This Important?
Evergrande defaulting on its debt payments has shaken confidence in Chinese real estate markets and caused investors to “de-risk” their portfolios… Its caused volatility and market sell offs in the stock market as investors or lender to Evergrande are no doubt selling assets to cover some the capital now at risk of default with Evergrande. Its also made investors worry about a wider spread debt crisis or “contagion” event in markets where lenders or debtors to Evergrande are then also at risk if those debts are not paid back.
So Whats Going To Happen?
So while we outline what this does mean for markets its important to also outline what it doesn’t mean… There are fears that this could be a similar event to the real estate crisis in the US around 2008 where Lehman Brothers defaulted on their debts… and we all know how that ended right?
Well I don’t think this is the same… and more importantly I don’t think that the Chinese authorities would allow that to happen. This event in some ways has been caused by the Chinese authorities trying to calm the excesses they knew about in the Chinese real estate market…
So I believe this is somewhat a controlled explosion by authorities in China that are looking to deleverage their market excesses. If that is the case then the fear in the market currently of contagion risks and full blown market crisis is over exaggerated. That means there’s a real possibility that this COULD offer an opportunity to get a good entry into the market during this pullback.
I want to explain why that’s the case and what impact it might have going forward…
What is Evergrande?
For anyone who has never heard of Evergrande or maybe has heard it but isn’t sure what it is…
Evergrande is Chinas 2nd largest Real Estate developer and 122nd largest company in the world.
They employ over 120,000 people.
They have over 1,300 building projects in China.
And importantly, they also have some of the largest company debt in the world…
They owe approximately 300 BILLION dollars. And can’t afford to pay it back…
So What Does It All Mean & Why Is This Important?
Evergrande defaulting on its debt payments has shaken confidence in Chinese real estate markets and caused investors to “de-risk” their portfolios… Its caused volatility and market sell offs in the stock market as investors or lender to Evergrande are no doubt selling assets to cover some the capital now at risk of default with Evergrande. Its also made investors worry about a wider spread debt crisis or “contagion” event in markets where lenders or debtors to Evergrande are then also at risk if those debts are not paid back.
So Whats Going To Happen?
So while we outline what this does mean for markets its important to also outline what it doesn’t mean… There are fears that this could be a similar event to the real estate crisis in the US around 2008 where Lehman Brothers defaulted on their debts… and we all know how that ended right?
Well I don’t think this is the same… and more importantly I don’t think that the Chinese authorities would allow that to happen. This event in some ways has been caused by the Chinese authorities trying to calm the excesses they knew about in the Chinese real estate market…
So I believe this is somewhat a controlled explosion by authorities in China that are looking to deleverage their market excesses. If that is the case then the fear in the market currently of contagion risks and full blown market crisis is over exaggerated. That means there’s a real possibility that this COULD offer an opportunity to get a good entry into the market during this pullback.