No Lehman risk with Evergrande but why is the market still worried? – The Standard
|The Hong Kong-based media outlet, The Standard, shrugs off another Lehman Brothers-like crisis from the troubled Chinese property developer Evergrande after speculations last week over the company’s more than US$300 billion debt (HK$2.34 trillion) problem.
However, The Standard goes on to explain why the market is still worried.
Key takeaways
“The main reason is that Evergrande debts are equivalent to 2 percent of China's GDP.”
“What's more, investors are worried about a domino effect, sharp drops in property prices and the impact on other firms.”
“It may also affect the enterprises' ability to finance and issue bonds, thus bringing further havoc to China's real estate market and another "Lehman storm."
“However, unlike the US market in 2007 to 2008, China's does not have too many complicated financial products that can affect housing market operations and Beijing's ability to control and monitor the market is better than the United States.”
“Therefore, an Evergrande collapse may have a short-term impact, but in the long run, the market may have many opportunities.”
Market reaction
With Mainland China’s markets closed on Monday, Hong Kong’s equities are sliding, courtesy of the 12% collapse in Evergrande’s shares. The market mood is downbeat, weighing on the riskier assets such as the aussie dollar, S&P 500 futures while lifting the US dollar index to monthly tops.
Meanwhile, USD/CNY is trading flat at 6.4655, with Hang Seng losing 3.65% at the press time.
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