Is Evergrande China’s “Lehman Moment”?
News or Noise?! Is China’s Evergrande real estate property developer defaulting on their debt their version of a “Lehman moment”?
Evergrande financed its expansion almost entirely through Chinese banks and investment products sold to domestic Chinese investors not through international banks.
Problems at Evergrande have been well-published starting over 5 years ago. A highly respected analyst published the first short report regarding Evergrande almost a decade ago. The Chinese government has been forcing changes in the industry for over a year now.
Problems at the property developer could certainly slow China’s economy and “dent the world economy,” with commodity focused investments potentially most hurt. However, lower commodity demand and pricing would ease many investors concerns over inflation.
Now, putting this in the context of the U.S. economy and stock market: Leading economy indicators in America are turning up for the first time since mid-1st quarter of this year (retail sales, housing, travel). The Citi Economic Surprise Index has started to rally off its normal summer lows and this data series has been a very good forward indicator for USA growth accelerations and broad S&P500 stock market rallies.
Lumber prices, which were the first commodity to turn up in April of 2020, foreshadowing an strong economic recovery, and peak in mid-first quarter of 2021, foretelling a seasonal slowdown, have started rallying again since mid-August with little attention from strategists and economists.
News or Noise? News…but for long-term investors, short-term noise
Source article: https://www.cnbc.com/2021/09/20/chinas-evergrande-crisis-could-inflict-pain-on-the-world-economy.html
Chinese officials are expected to stem the spillover from liquidity issues at Evergrande, the country’s largest property developer, before it slams the banking system and bleeds into foreign financial centers.
But strategists also say Beijing needs to act quickly to restructure Evergrande, because markets are becoming nervous and it is hurting sentiment.
The problems at the property developer could damage China’s economy and from there also dent the world economy.
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