Reuters File Photo: March 26, 2018, an exterior view of the China Evergrand Center in Hong Kong, China. Reuters / Bobby Ip / File photo
By David Randall, Maya Keidan and Swaya Herbst-Bayliss
NEW YORK (Reuters) – The downfall of heavily-touted Chinese real estate company Evergrand has left investors frustrated with the possibility of a massive shake after global stock sales.
For now, many U.S.-based investors believe that the woes of Evergand, China’s second-largest property developer, could turn into a systemic crisis, reminiscent of the Lehman Brothers’ collapse in 2008.
Yet, given the valuation of U.S. equities expands on a historical basis and the Federal Reserve’s easy economy uncertainty, some fear that a sudden drop in risk appetite could put global markets at greater selling risk.
“We are keeping a very close eye on the market because of the high valuation levels,” said Rob Romero, portfolio manager at Connecticut Capital, a technology hedge fund with ড 100 million in assets under management. “It’s hard to know how far the infection will spread. We’re looking for signs of resilience in the U.S. market; if it doesn’t, it means the risk of infection is high.”
Concerns about the level of Evergrand’s return through the global financial system come at a time when the high valuation of the equity market has prompted many investors and analysts to withdraw.
The benchmark has earned 21.6 times forwards as of Friday, near its highest level since the late 1990s dot com bubble, and has risen more than 18% to date for the year before Monday’s trading.
Although Evergrand has been in turmoil for several months, its shares fell more than 10% on Monday as Chinese regulators warned that its 30 305 billion debt could cause massive damage to China’s financial system if its tsunami is not stabilized.
Late payments to the company can lead to cross-default.
MSCI Global fell 1.62%, at the pace of its worst performance in two months, worrying about a broader global default. Investors rushed to shelters like Treasuries, pushing 10-year U.S. benchmark yields to a one-week low, while 10-year U.S. interest rates on Treasuries remain in their broadest positions for nearly six months.
In another sign of concern in the money market, analysts cited the three-month Liber, which has risen to a four-week high of 12.5 basis points, reflecting concerns of potential pressure on the global banking system. [L1N2QM1UV]
At the same time, there are some signs that institutional investors have taken an overlave position in Evergrand that will create a liquidity crisis, said Robert Sears, chief investment officer at Capital Generation Partners.
“So far most of the negative steps () have been in the Chinese property sector,” he said. “I don’t think it has had a big impact on most hedge funds so far.”
In the US equity options market, traders are more interested in making a profit from existing hedges than buying protection against sharp selling, even standing at a four-month high. [.L1N2QM1L2]
Andrew Bam https://www.reuters.com/article/us-hongkong-court-citron/short-seller-andrew-left-loses-appeal-against-hong-kong-market-ban-idUSKCN1QF1P0, founder of Citron Research, Which released a report in June 2012 stating that Evergrand had defrauded bankruptcies and investors, and did not expect widespread pain.
“I don’t think it will be a straw that will break the back of the world economy,” he said.
In fact, some investors said Monday’s price decline should have been expected due to concerns over the possibility of higher capital gains, starting with the summer S&P 500 rally and the debt ceiling debate in Washington.
“Coming in September, we thought valuations and optimism were so high that investor sentiment seemed dramatic but somewhat risky for short-term change,” said Brian Jacobsen, senior investment strategist. Wells Fargo (NYSE 🙂 asset management.