What is the evergrande collapse?
Markets fell and Bitcoin price tumbled on fears of an economic contagion triggered by the collapse of China's Evergrande, the world's most indebted property developer. Evergrande owes roughly $300 billion in debt and is the poster child of an overheated Chinese property market. InvestopediaGlobal Equity Markets Fall Over China Evergrande Fears
How much debt does Evergrande have?
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. NPRFrom Evergrande To Delta Variant, 3 Things To Know About The Stock Sell-Off
Why is the S&P down today?
"Today, the market is down because of the Chinese real estate contagion threat, despite a lot of good headlines recently on COVID," said Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma. "We're due for a correction," he said. "It's like the market is addicted to buying the dip. ReutersS&P 500 down more than 2% as growth worries rise
Updated 4:11 PM ET, Tue September 21, 2021
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Read full article at Investor's Business Daily
21 September, 2021 - 02:33pm
Updated 9:12 AM ET, Tue September 21, 2021
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21 September, 2021 - 04:54am
An ugly start to September, and the even uglier start to this week’s trading session, can be defined using two alliterative words that often unsettle investors.
The first word relates to stocks that, as bulls are wont to remind us, usually go up. That has mostly been the case this year — until Monday, that is, when Wall Street suffered its worst session in four months. The liquidity crisis sparked by Chinese property developer Evergrande has emboldened some analysts who think the market is long overdue for a correction (typically defined as a downturn of at least 5%-10%).
“While the Evergrande situation is front and center, the reality is, stock market valuations are overstretched and the market has enjoyed too long of a break from volatility and Monday's stock market declines are not surprising,” said David Bahnsen, CIO at wealth management firm The Bahnsen Group, with over $3 billion in assets under management.
It remains to be seen whether a correction is in the offing. Still, the word contagion bubbled up more than once on Monday, as Yahoo Finance’s Brian Sozzi explained. Ironically enough, the two themes are connected by a third that also starts with a ‘c’: namely China.
Evergrande may or may not be the trigger event that bears have been waiting for. But it has amplified pervasive market jitters about the direction of the Chinese economy, and Beijing’s policy orientation.
China has spent the better part of the summer throwing its weight around in various sectors of the economy, a stark reminder about its unapologetically authoritarian bent. And in a market with a short memory, Evergrande also reminds us that China is littered with economic landmines that have the potential to ricochet across the global economy.
“The problems have been there for so long that most people watching the Chinese economy have just started ignoring them,” China Beige Book CEO Leland Miller told Yahoo Finance Live on Monday. “The major issue here is: Can the government contain the problems within the property sector?”
Evergrande has over $300 billion in liabilities, but only $15 billion in cash on hand, raising worries that it can’t make good on $84 billion of interest due next week, according to a report in Bloomberg. So is this the new Lehman Brothers, Wall Street’s erstwhile investment titan that became synonymous with systemic risk?
Perhaps, but indications suggest we’re not there yet. Safe havens like gold, U.S. Treasury debt and the U.S. dollar are well-bid, but far from levels that would be associated with nervous investors seeking shelter from squalls buffeting world markets.
“Although the impact from Evergrande’s liquidity crisis is enormous, the good news is the fallout hasn’t started to spillover to other markets,” LPL Financial Chief Market Strategist Ryan Detrick wrote in a note on Monday.
“Short-term funding markets are acting just fine in China thus far; remember, it was the money markets in the U.S. that first started to show cracks in the system in early 2008, well before the wheels fell off,” Detrick added.
Contagion? Unlikely, but not entirely out of the question.
Yet day-by-day, the events unfolding in China are rattling investor confidence, injecting more uncertainty and volatility in a market that doesn’t need any more of either. At a minimum, investing in China “has become more complex,” as analysts at Wasatch Global Investors wrote on Monday.
Arguments that China has abandoned capitalism might be a stretch, the firm wrote. However, “besides evaluating a company’s underlying fundamentals, investors must now weigh the extent to which the firm’s business aligns with the policy objectives of the Chinese government,” it added.
8:30 a.m. ET: Housing starts, month-over-month, August (1.0% expected, -7.0% in July)
8:30 a.m. ET: Building permits, month-over-month, August (-1.8% expected, 2.3% in July)
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Melinda French Gates is in Washington and has a 9:30 a.m ET meeting set with Vice President Kamala Harris to discuss the global COVID-19 response. Gates recently penned an op-ed arguing for national paid leave.
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Democrats in the U.S. House of Representatives advanced a bill on Tuesday that would protect the right to abortion and annul some new restrictions passed by Republican-controlled state governments. If the "Women's Health Protection Act" passes the Democratic-controlled House, it is unlikely to succeed in the 100-member Senate, where Republicans also are a minority but hold enough votes to prevent it from reaching the 60-vote threshold to pass most legislation. Democrats sent the bill to the full House after a law took effect in Texas early this month that almost completely bans abortion in the state.
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U.S. stocks ended near flat on Tuesday after a broad sell-off the day before, with worries over troubles at developer China Evergrande and uncertainty ahead of Wednesday's Federal Reserve policy news keeping a lid on the market. Concerns over China Evergrande Group have put investors on edge amid coronavirus and economic growth worries. Persistent default fears overshadowed efforts by Evergrande's chairman to boost confidence in the firm on Tuesday, while Beijing showed no signs it would intervene to stem any effects across the global economy.
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The global economy could feel the effects of China's Evergrande crisis. Here's what investors should know
20 September, 2021 - 04:23pm
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."
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.
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.
"I think ultimately the Chinese authorities will step in to make sure at least the wider financial system doesn't run into crisis," said Mark Williams, chief Asia economist at Capital Economics. "If you're a property developer you're facing a few bleak months ahead. The key distinction I think is policymakers will allow property developers to suffer considerable pain, but they'll step in to make sure the banking system is okay."
Jim Chanos, president and founder of Kynikos Associates, said it's a critical moment for the Chinese leadership, which has been carrying out a regulatory crackdown on internet companies, education companies, gaming and other industries.
Chanos said it will be key to see how Beijing responds to Evergrande.
"We are seeing a different change in tone ... the way the government is treating business, business leaders, Western investors. How will they handle a bailout that everyone thinks is coming, in some way, shape or form?" he said on CNBC. "Will Western bondholders be bailed out? Will it only go to property owners who are owed apartments that are not yet constructed by Evergrande? Will banks take a haircut?"
China has tried to stem the speculation in its property market four times since 2011, Chanos noted. "In each of those cases, the economy hit stall speed really quickly, and the authorities took their foot off the brakes and hit the accelerator again," he said.
He said that the residential property market equals 20% of China's GDP, while real estate activity in general is about 30% of GDP.
"These are just the off-the-chart kind of numbers, and they've gotten worse under President Xi [Jinping], not better. We don't think it's systemic to the Western financial markets," said Chanos, who has shorted China stocks.
Capital Economics' Williams said there are about 1.4 million property owners who have paid deposits and await delivery of Evergrande properties. "We don't know whether they can build the houses, but it seems unlikely," he said, noting that some residences are already underway and at different stages of construction.
The risk is if there is also trouble at other property companies, property values will suffer and there could be turmoil in the housing market. The consumer is a large factor in the Chinese economy, and a hit on housing could hurt consumption.
That would also bleed into other regional and global markets through a weakening in the Chinese imports market as well as a slowing of demand for all sorts of raw materials.
"When you couple it with some of the regulatory changes in China, the clear slowdown in growth, the clear slowdown in commodity demand alongside that growth, there's some reason to pause and be patient about what's happening in the region," said Rieder.
"But the growth of China economically and the intertwined nature of China in the global economy is massive, and so China as an important focus of the markets isn't going away anytime soon," he said.
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