Global equity markets collapse amid fears of Evergrande in China

Stock markets fell and the price of Bitcoin (BTCUSD) fell on bankruptcy fears for China Evergrande Group (EGRNF), a Chinese real estate giant and the world’s most indebted real estate developer, on Monday morning. Investors, fearing contagion similar to that which engulfed the global economy during the 2008 housing crisis, offloaded the risk and sold their holdings across the board.

The Dow Jones Industrial Average (DJIA) lost 500 points, its biggest drop since July, after it opened. A similar story occurred at London’s FTSE 100, which recorded a steep decline, falling below 7,000 for the first time since July. The Stoxx Europe 600 index was down 2.1% and the Hong Kong Hang Seng index was down 4% during the session.

Meanwhile, the price of Bitcoin had slumped 10% in 24 hours to hit $ 42,500 on Monday morning. Cryptocurrency is viewed as a haven from global unrest by its supporters. At 3:10 p.m. UTC, Bitcoin was changing hands at $ 43,651.48, down 8% from its price a day earlier.

Key points to remember

  • Markets fell and the price of Bitcoin fell over fears of economic contagion triggered by the collapse of China’s Evergrande, the world’s most indebted real estate developer.
  • Evergrande has roughly $ 300 billion in debt and is the child star of an overheated Chinese real estate market.
  • Analysts, however, dismiss the prospect of a collapse in the global economy.
  • Falling stock valuations are another opportunity for Bitcoin to prove its worth as a safe haven for investors.

The housing giant that went bankrupt

Investor concerns center on the fate of Chinese real estate developer China Evergrande. The Guangzhou-based company is one of the largest real estate companies in China. Much of its growth was funded by a debt spree. For example, he borrowed from banks and financial institutions and sold bonds with double-digit interest rates to international investors. It also issued commercial paper to contractors and building material suppliers as payment.

According to reports, China Evergrande owes around $ 300 billion, or about 6% of the total debt of the Chinese real estate sector, to creditors, investors and other stakeholders. Of that, $ 89 billion is in loans and bonds, and $ 120 million is due in interest payments on two bonds this week.

A slowdown in the overheated Chinese housing market this year has caused sales to slow down, making it difficult for China Evergrande to pay its suppliers. The pressure has been building up on the Chinese real estate sector for a few months now, and Evergrande has become a poster child for the levels of over-indebtedness present in the sector. Protests took place outside its offices and rating agencies downgraded the quality of its debt. Chinese banks have also stopped giving loans to consumers for unfinished Evergrande properties.

A Wall Street Journal report on the company details the innovative methods Evergrande uses to pay off its creditors. For example, he paid off a supplier who owed $ 34 million in invoices with three unfinished properties. Evergrande himself has warned investors of a default. Its stock price has slumped 87% year-to-date to $ 2.28.

The effect of an Evergrande default on the consumer and Bitcoin markets

By most accounts, Evergrande is a giant in the Chinese economy. Besides real estate, the company also has companies dedicated to the electric car, healthcare, consumer products and entertainment industries, among others. It directly employs 200,000 people and creates more than 3.8 million jobs, according to its website.

Given its size, the company’s difficulties could cause the real estate sector to slow down and have a domino effect on the Chinese economy and by extension on the global economy. Several recent reports on Evergrande have referred to a potential default as the “Lehman moment,” referring to when the legendary bank collapsed and sparked a series of events that culminated in a global recession.

But analysts say the chances of failure spilling over into all economies are unlikely. Senior Capital Economics analyst Simon MacAdam wrote that “even a disorderly collapse of Evergrande” will have little global impact beyond market turmoil. “Even though it was the first of many real estate developers to go bankrupt in China, we believe it would take a political misstep for it to cause its economy to slow down sharply,” he wrote.

Natixis, an investment bank, wrote that the risks of “systemic risks” in the Chinese economy are unlikely as the Chinese government will likely work to avoid such an eventuality and avoid negative repercussions before Congress National 2022 National Party of the Chinese Communist Party.

Neil Wilson, analyst at, told Barrons that the current sell-off is not a Lehman moment. “What we are seeing today is how the risks are assessed gradually and then suddenly. This is certainly a major cause for concern for investors right now and it is possible that we will see further losses before the decline is ultimately bought, ”he said.

For Bitcoin, its reputation as a safe haven is on the line again. Cryptocurrency proponents have long touted, without much evidence, the lack of price correlation between traditional markets and cryptocurrencies as a reason for them. investors to place their money in the asset class.

According to Leah Wald, CEO of cryptocurrency asset firm Valkyrie Investments, today’s sell-off occurred because traders cashed in their riskiest assets to cover margin calls or are waiting for the markets calm down. “If ever Bitcoin had the opportunity to establish itself as a safe haven or as digital gold, with US companies also reporting that their profit calls are going to turn out bad results, now is the time,” said Wald at CNBC. Bitcoin’s price topped $ 50,000 again this month, only to fall again after the SEC chief reiterated his calls for more regulation in the “Wild West” crypto.

While China has rescued struggling businesses in the past, a bailout with government money may not be an option for Evergrande. Authorities have already rejected an earlier plea by company founder Hui Ka Yan. A more likely outcome is debt restructuring. According to a Bloomberg report, the Chinese government is setting up a group of accounting and legal experts to investigate Evergrande’s finances and come up with a restructuring plan for its debtors.

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