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The Evergrande Crisis: What Traders Should Know About It

— October 8, 2021

The crisis however continues, since Evergrande’s biggest rival, Fantasia, announced to miss the $206-million bond payment deadline.

Global and US markets currently face a massive fall, since it has been announced that Evergrande, the second-largest real estate company in China owes $305 billion dollars to offshore financial companies, employees, and suppliers. Once a leader of the country’s property boom, the Chinese real estate conglomerate is currently one of the most indebted companies in the world. Warnings of a potential collapse appeared as early as in 1018, and this September the Evergrande announced its cash flow issues, stopped repaying investors and suppliers, flagged depressed flat sales, and stopped building work for housing projects. This immediately resulted not only in stocks being hammered over the Asian markets but also S&P500 seeing big swings, the biggest it has seen since May. Amazon shares fell 0.74% amid reports the Teamsters Union has launched campaigns to organize employees in at least nine Canadian facilities of the e-commerce giant, Apple shares lost 1.83% Friday underperforming the market. On Tuesday the positions of US indices recovered as it became clear that Evergrande’s possible default will not cause a larger shock.

Image by Behnam Norouzi, via
Image by Behnam Norouzi, via

Despite some opinions by more bullish investors that China will find a way to restrain the economic fallout, other experts are less positive about it. 

What Day Traders Should Know About Evergrande’s Crisis

The major part of how to trade CFDs successfully makes is short-term trading. Investors who are involved in short trading, like forex trading or day trading, are less likely to have major losses from events like this, because their strategy is based on wining on opportunities like this. Nevertheless here are a few facts to know about Evergrande’s situation.

Monday, trading Evergrande shares was suspended in Hong Kong Hang Seng Index. Meanwhile, Global traders and investors remember quite well how the collapse of Lehman Brothers in 2008 caused the global financial stress to turn into an international financial crisis. With global stocks being affected by the downfall of the Chinese real estate market, permabear traders are concerned if the Evergrande contagion will further affect the global stocks. The exposure to risks for investors is relatively low for now while China prepares for the company’s demise. We can say that for now, if you are not a direct owner of Chinese stocks, the crisis around it probably will not be huge for you. However, indicators show that if China is not able to restraint the situation, the property market and people around it will be affected greatly, indicating at least an effect on the consumption activity of the Chinese. For the past ten years, China has become a source of economic source globally, that it is not a surprise that even a slight decrease in the country’s GDP will affect European and US markets. 

With Evergrande on the verge of collapse, investors were concerned about possible implications beyond China, considering September was seasonably rough. Dow futures declined almost 700 points (nearly 2%), and Honk Kongs’ HSI dropped 3%.

Facts for Day traders to know about the Evergrande situation

  • The market crisis has touched other real estate developers, like Fantasia and Sinic Holdings.
  • Four of the largest Chinese banks Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China, and Bank of China made it into the top five global banks, and are highly exposed to the Chinese property market.
  • Beijing hopes to soften the consequences by selling major assets to state-owned firms.
  • Foreign investors will most likely be wiped out, while the domestic damage hopefully is reduced.

Evergrande Shares Halted in Hong Kong Trading

China’s government has hopes to unwind the Evergrande issue with key asset sale. So far, on September 29 Evergrande said it sells its $1.5 billion stake in Shengjing Bank to a Chinese state-owned enterprise to pay down the debts. Evergrande held 34.5% of the Shengjing Bank Co Ltd, now reduced to 14.75. There were warning signs of the bank’s financial health since May. Back in July, the Shenyang government stepped in reforms at Shengjing Bank noting it would strengthen the Communist Party leadership in the bank to help it develop into “a good bank”. Following the deal, Shenyang Shengjing’s stake in the bank will be 20.79% making it the bank’s largest shareholder. 

Evergrande is now set to sell its stake in the property management sector, making it the Chinese giant’s largest asset sale so far. Monday, Hong Kong shares of Evergrande were halted, during announcements of the company’s failure to pay its upcoming offshore debt. The crisis however continues, since Evergrande’s biggest rival, Fantasia, announced to miss the $206-million bond payment deadline. This could also implicate further downfall of China’s outsized real estate market, adding worries about further pressure on the Chinese economy. Concerns over Evergrande and the Chinese real estate industry continue, while Evergrande faces deadlines on dollar bond coupon payments total of $162.38 million this month. 

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