Yesterday the Chinese government came out and declared the situation with the developers contained. This sent some shockwaves through the global system, a situation that was not resolved.
In this video I discuss how we are seeing a situation similar to Ben Bernake more than a decade ago when he said the subprime crisis was contained. It was not.
The deal with Evergrande along with the other developers is a big deal and will likely have global ramifications.
▶️ 3Speak
Summary:
In this video, the speaker discusses the Chinese government's recent statements regarding the Evergrande and overall bond situation in China. Drawing parallels to past financial crises, he expresses skepticism about the government's claims that the issue is contained. He emphasizes the importance of confidence in macroeconomics and how it affects investments in the housing market and bonds. The speaker predicts potential consequences of leaving international bondholders out to dry and how it could impact China's investment environment. Overall, he questions the feasibility of the government's optimistic outlook and highlights the broader implications of the Evergrande crisis on global markets.
Detailed Article:
The speaker begins by addressing the Chinese government's reassurance that the Evergrande crisis is contained and will not spread further. Drawing a comparison to Ben Bernanke's assurance during the subprime crisis, he expresses skepticism, citing how such claims have backfired in the past. He delves into the crucial role of confidence in macroeconomics, especially in relation to investments in housing and bonds, emphasizing that people need confidence to engage in transactions.
He highlights the Chinese government's need to maintain positivity to encourage home purchases and bond investments, essential for the stability of the housing market. The speaker mentions the pressure on developers to utilize available funds to complete projects to ensure transactions proceed smoothly and avoid customer dissatisfaction. However, he predicts that bondholders, especially those holding debt in US dollars, might face significant losses as the Chinese government may prioritize backstopping yuan-denominated debts.
The speaker criticizes the government's short-sightedness, suggesting that leaving international bondholders in the lurch could harm China's investment attractiveness in the long run. He worries that such actions might deter future investments as potential investors may perceive China as a risky market. Moreover, he emphasizes the different mindset of bondholders compared to equity investors, and the impact on portfolios when faced with potential losses.
In conclusion, the speaker expresses doubts about the Chinese government's claim of containment, noting the emergence of additional concerns such as Fantasia and the unknown exposure of other global entities to the Evergrande crisis. He speculates about possible repercussions on international banks, including the likes of Deutsche Bank, Italian banks, and US banks, underscoring the uncertainty surrounding the situation. The episode leaves viewers pondering the potential implications of the Evergrande crisis on the broader global financial landscape and the necessity of closely monitoring developments in the Chinese real estate sector.