Assumptions…
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70% of wealth in China is held in property (elsewhere average is btw. 20 to 35%)
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Evergrande’s international payment obligations are due on Thursday
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1/3 of current China GDP is created by construction and property related activity (builders, materials/commodities, industrials/machines, services, etc)
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China property market (sales) has been lagging for some months already
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a lot of Chinese investors have been harmed by the gov's regulatory actions in respect to Chinese tech companies (declining tech stocks), hence sentiment sensibility is heightened
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holidays in China until wednesday .. markets are closed... thus delayed reaction of Chinese main street
Outlines of 3x spill over scenarios
1.) Unorderly containment + large spill over
Evergrande default spills over to other property and real estate firms in China.. with unorderly containment, leading to a considerable decline in many related industries (incl. services) due to panic and liquidity-squeeze-related market actions. Property prices in China would collapse and lead to a moderately sized property sell-off -> the rather significant negative GDP impact would hit Chinese wallets directly, leading to severe repercussions for China-focused firms (global) and China’s future growth in general
-> large impact on international markets (most sectors), global crisis potential, quicker decline of China’s GDP, FED would have to delay tapering
2.) Orderly containment - moderate spill over
Evergrande default spills over to other property firms in China.. with orderly containment, resulting in a moderate decline in a few related industries (construction, concrete/steel, machines, real-estate) -> the GDP decline would impact China’s domestic spending/consumption power moderately and lead to a medium-long term cooling of the China property market with rather big slow down of international commodity markets (spec. looking at Australia, New Zealand, South Africa)
-> moderate impact on international markets (few sectors only), less long-term effects, slow-paced decline of China’s core GDP
3.) Orderly containment - small spill over
Evergrande default spills over to a few selected property firms in China (with extra large debts). China’s gov steps in quickly and aggressively to ensure an orderly containment with a direct relief to calm down markets, resulting in a small decline in a few related industries (construction, concrete/steel, machines, real-estate) -> the slight GDP decline would result in rather short-term consequences for China’s domestic spending/consumption power. The CCP would at least manage to keep China's property prices stable thus not affecting savings/wealth of the main street too significantly; the spill over effects would be barely visible.
-> only short-term / slight impact on international markets (selected sectors only)
Submitted September 20, 2021 at 10:38AM by mekonsodre14 https://ift.tt/3lEaogR
