As the world continues to battle covid-19, skeptical investors are carefully watching the handling of the current Evergrande crisis happening in China. For starters, Evergrande is a real estate company, one of the largest in the world and probably the most indebted.
Its current debt stands at over $300 billion and things could get sour if the Chinese government doesn’t deal with it appropriately. Most persons might not care to know about Evergrande, its finances, and the possible implications if it does collapse.
If we should take a look at the world today, it’s extremely connected and complex. Hence one of the reasons why different global markets tend to have a positive correlation coefficient. If one falls the other one reacts the same way and vise versa.
Look at even the financial crisis of 2008, its impact spans across most countries of the world. Even little Jamaica was impacted. l remembered the recession pretty well even though I was a young chap at the time.
Observe the 10-year chart below:
The Jamaican dollar has never gained any substantial footing against the US dollar ever since. Even though the USA never recovered slowly and painfully through any innovation or any major changes in the financial system. They just printed more money to bail out the banks and get on with life.
In our short attention span era, I don’t think most kids today even care about this. History tends to repeat itself ever so often. We are creatures of habits so expect something to happen similarly in the future. That’s how long-term short-sellers make real money.
Masters of Chaos
Here we are in 2021, and another real estate-esque phenomenon similar to 2008 could happen. I am sure the land of the dragon is figuring out a way on how to tackle this monstrous bear. If one thing we should know about China and know very well is the sheer ability to control the chaos.
The Chinese government is able to control the narrative to a successful degree most of the time. They have their long tentacles stretched across possibly every single segment of society and will stop short of nothing to maintain that. As a result, at the moment, most of the citizens of China who have some type of connection to Evergrande are oblivious to what is going on.
Even if they are skeptical, they will have to be motivated to get out of that bubble and research. Frankly, this is probably another field of skill in itself. That requires organizing a system that can escape the state-owned firewall which protects the locals from western media.
Despite the Chinese government’s monopoly on the media and society, in specific localized areas, there were protests which happened earlier this month.
For example, in Jingdezhen homebuyers were protesting over the possible collapse of Evergrande but the officials reacted quickly on social media to cull the unrest. It wasn’t smooth sailing but they got the job done.
Teaching a Lesson
Another sentiment among high officials in China is that Mr. Xi Jinping is teaching assumed to be “sophisticated” investors a lesson who engage in high-risk practices.
It might seem logical whenever the market is going up and everything is normal. On the flip side, whenever something unexpected happens such as the covid-19, in this case, things can get a bit tricky.
Those who are over-leveraged will be caught out. Although the Chinese government will solve this issue, they might be organizing a deal that will ensure that this will not happen again and to this degree.
At the moment Evergrande’s stock is trading at 2.55 Hong Kong dollars from an all-time high of approximately 31 Hong Kong dollars.
Going Forward
The Chinese government at the moment is having their hands dipped in a lot of different pots. This includes Bitcoin regulation, tech regulation, covid-19, global relations, etc.
I am not sure of the extent or how they would prioritize this issue over the others, but it will be interesting to watch.
Stay tuned…
