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Evergrande crisis: A global destabilizing factor

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Evergrande Group’s liquidity crisis has become a destabilizing factor on global stock markets. Analysts are beginning to examine the impact that this crisis will have on the entire real estate and financial market going forward.

Experts, however, differ widely in their opinions. In contrast to those who fear that the Evergrande crisis will spread to other markets beyond real estate, others predict that it will not trigger a crisis on the same scale as Lehman Brothers.

evergrande default

According to major foreign media and Chinese media on the 22nd, industry experts and specialists interpret Evergrande’s default as a scheduled procedure. Their assessment is that Evergrande already faces a severe liquidity crisis, such as non-payment of construction costs to many of its suppliers, which prevents the normal repayment of principal and interest on money borrowed from financial institutions or the issuance of bonds.

The Wall Street Journal (WSJ) pointed out that the Evergrande crisis is just the beginning. In China, there are insolvent property developers like Evergrande, so a spark from Evergrande could drag property companies into the crisis and shock the market again. Therefore, it is possible that the Chinese authorities will intervene first and prevent the bankruptcy of the company. According to CNBC, citing the prediction of economist Ed Yadeni, the shock of Evergrande’s bankruptcy would be similar to the Lehman crisis, which triggered the global financial crisis in 2008.

China’s South China Morning Post (SCMP) also observed that Evergrande’s bankruptcy may lead to increased borrowing costs, increasing commercial pressure. As a result of the government’s efforts to reduce financial risks, many property developers have already been forced to file for bankruptcy.

Many people believe, however, that the Chinese government is unlikely to directly support Evergrande. According to this logic, if Evergrande support is launched at this time, the company’s hand in the real estate sector could be weakened. “Evergrande’s financial situation doesn’t represent the entire Chinese property market,” reported Barclays, a global investment bank.

“The Chinese government should only intervene to avoid defaults if Evergrande’s crisis impacts other major developers.”

For MetaNews.

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Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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