Concerns Mount About China’s Real Estate Market

Evergrande’s Announcement

US stocks declined in trading Monday, as concerns intensified that Beijing will not bail out China Evergrande Group (EGRNF), a Chinese real estate company which warned last week that it cannot pay back its debt. The company has the largest debt position of any publicly traded real estate management or development company. If Evergrande fails it will result in massive losses for investors and bondholders.

Evergrande’s troubles come as investors are growing more concerned about whether stocks will be able to rally after a strong year so far in 2021. With valuations rising and signs emerging that economic recovery in the US may be slowing, investors sent stocks lower Monday.

Oil Prices Fall, Dollar Strengthens

As investors sought out safe havens yesterday, oil prices declined and Treasury yields fell while the dollar gained strength. Bitcoin also traded lower, as did tech and financial stocks. Investors are now looking more critically at the broader property sector and the impact an Evergrande failure will have on the rest of the industry.

Regulators in China are putting pressure on real estate companies including Evergrande to lower their debt exposure as they try to cool off the red-hot real estate market in the country.

Is This China’s Lehman Brothers Moment?

Evergrande has about $300 billion in debt coming due, which is prompting some industry watchers to warn that its collapse could be China’s “Lehman Brothers moment.” In 2008, Lehman Brothers, the Wall Street firm, filed for bankruptcy, which was a big contributor to the global financial crisis.

At the very least, the problems at Evergrande are expected to have a spillover effect in the real estate sector and other parts of China’s economy. Concerns about the company are already having an impact on stock markets across the globe. With a potential collapse of Evergrande, investors are bracing for even more volatility in the coming days.

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