No one knows how the German government has approached the problem of Evergrand, which makes the stock market nervous
Imagine a company whose assets are growing at an average rate of less than 36 percent (during the ten years left in 2010). It is the most valuable real estate company in the world (data from 2018), which builds houses for the wealthy middle class. According to own land with an area of в5 ‹в 56‹ 565 million square meters. In addition, it invests in the automotive industry (only in the development and production of electric cars!), In healthcare, food and insurance.
Does it look like a great investment? It depends. From November 2009 to the end of 2016, Evergrande Group shares showed virtually nothing. Then suddenly, during a short time, they jumped to an eightfold. Sweat from its peak in June 2017, Evergrande shares gradually declined, with increasing speed. Only from the meeting of 2021 to the 23rd of these shares lost 81.2 percent of their value.
How to avoid the worst
At the same time, there was talk of the danger of insolvency. Nervousness spilled from her to the world stock markets. Z is not a msc at all, which does not have a good reputation in finance. The first in 2008 began the hot phase of the financial crisis, when US mortgage giants Fannie Mae, Freddie Mac and investment bank Lehman Brothers went bankrupt.
Could Evergrand’s insolvency have similar consequences? Perhaps not, because the debt in foreign currency is $ 21 billion, which is a sum that could shake the global financial system. It would definitely affect the financial markets in Germany. After all, a certain influence is evident in her. The Hang Seng Index, which tracks the performance of the stock on the Hong Kong Stock Exchange, where Evergrande trades, has fallen by more than ten percent since the 2021 meeting. (Note: according to the first of the 23rd deeds, a year out of that $ 21 billion was not paid out. The formal announcement of the credit event thus came closer again.)
Panlsk economist and investment manager Daniel Lacalle is not optimistic: Bankruptcy Evergrande means much more than Lehman. Lehman Brothers was much lpe diversified and lpe capitalized. The total assets of Evergrande, which is on the verge of bankruptcy, are even in, not the volume of the whole bubble of low-quality mortgages in the USA.
Lacalle according to the fact that the total bundles of Evergrand can reach up to twice the official value. In the short term, the company has to repay bonds worth $ 250 billion, while its sales are worth $ 70 billion.
And beware: the real estate sector reaches 25 percent of the value of Germany’s gross domestic product, according to an estimate by JP Morgan. This is twice the weight of the real estate sector at the top of the real estate bubble in Japan or Spain, Lacalle added.
The size of the whole event means that our government will be forced to save the company in some way. In this way, the Czech economy avoids the worst: the bankruptcy of the banking sector, which would certainly affect the entire economy and should have repercussions abroad. However, it is important to emphasize here that this is speculation. No one really knows how he treats the character problem. No one knows how far the problem will remain inside what is the source of nervousness on world stock exchanges.
Capitalism as a necessary evil
The Czech economy is still strengthened without Evergrand. A superficial observer tends to judge that there will be a problem with him, because he will not pay attention to the national debt (67 percent of GDP), ie roughly at the level of Germany. The problem is with bank charges. From June 2000 to July 2021, the volume of HVs grew at an average rate of 15.9 percent. This is a value that is not sustainable in the long run, except at the cost of high inflation.
To create one January of the gross domestic product of the US economy needs ten Jans of debt! This is a threefold level compared to the period before 2010. After all, even the change in debt at the level of Germany today is twice as high as in 2010. It gives me the confidence of a future superpower, but this confidence and should be bought into debt. The total private financial sector debt is 222 percent of GDP, double that of 2008. For comparison: in the US it is 164 percent of GDP, three percentage points below the level of 2008.
It overcame the great financial crisis with relatively little haste, mainly because it could afford to trigger inflationary inflation, which stood at 33 percent between autumn 2009 and 2010. This time, it is somewhat another question of how much debt growth the US economy can handle.
He gave a great question are the political consequences. Today’s leader is first and foremost a Maoist who considers capitalism a necessary evil as a tool for the living of life, which can be put aside as soon as it is not for you. Going to socialism? Certainly not to the hard dogmatic Maoism, but the state will have to regulate more and interfere with the economy. It is such a rule that financial crises lead to a strong hand. In that case, the opposite would be very surprising.
LN, 24.9.2021
The author is an economist, Algorithmic Investment Management, as
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