{"id":11624,"date":"2021-09-21T11:26:47","date_gmt":"2021-09-21T03:26:47","guid":{"rendered":"https:\/\/newmalaysiatimes.com\/?p=11624"},"modified":"2021-09-21T11:26:48","modified_gmt":"2021-09-21T03:26:48","slug":"investors-grappling-with-evergrande-fallout-weigh-the-risk-of-wider-pain","status":"publish","type":"post","link":"https:\/\/newmalaysiatimes.com\/?p=11624","title":{"rendered":"Investors grappling with Evergrande fallout weigh the risk of wider pain"},"content":{"rendered":"\n

NEW YORK, Sept 21 – Investors unnerved by the fallout from heavily indebted Chinese real estate company Evergrande\u00a0were gauging the potential for a wider shakeout after a\u00a0selloff hit stocks around the world.<\/p>\n\n\n\n

For now, many U.S.-based investors believe there is little chance that the woes of Evergande, China\u2019s second-largest property developer, could morph into a systemic crisis<\/a> reminiscent of the 2008 collapse of Lehman Brothers.<\/p>\n\n\n\n

Still, with valuations on U.S. equities stretched on a historical basis and an unwind of the Federal Reserve\u2019s easy money policies looming, some worry that a sudden drop in risk appetite could leave global markets vulnerable to a broader selloff.<\/p>\n\n\n\n

“We have a very cautious view on the market given elevated valuation levels,” said Rob Romero, portfolio manager at Connective Capital, a technology hedge fund with $100 million in assets under management. “It is hard to know how far the contagion will spread. We are looking for signs of resilience in the U.S. market; if that doesn\u2019t happen, that means contagion has more risk to snowball.”<\/p>\n\n\n\n

The concerns over the extent of Evergrande’s reverberations through the global financial system come at a time when high valuations in the equities markets had many investors and analysts calling for a pullback.<\/p>\n\n\n\n

The benchmark S&P 500 traded at 21.6 times forward earnings as of Friday, near its highest levels since the late 1990s dot-com bubble, and prior to Monday’s trading had rallied more than 18% for the year to date.<\/p>\n\n\n\n

CONCERNS BREWING<\/p>\n\n\n\n

While Evergrande’s woes have been playing out for several months, its shares tumbled more than 10% on Monday as Chinese regulators warned that it’s $305 billion in liabilities could lead to widespread losses in China’s financial system if its debts are not stabilized.<\/p>\n\n\n\n

\"Evergrande\"<\/figure><\/div>\n\n\n\n

Late payments by the company could trigger\u00a0cross-defaults.<\/p>\n\n\n\n

Worries over a broader default spread around the world, with the MSCI Global down 1.62%, on pace for its worst performance in two months. Investors rushed into havens such as Treasuries, taking the yield on the benchmark U.S. 10-year to one-week lows, while the 10-year U.S. interest rate swaps over Treasuries stood at their widest in almost six months.<\/p>\n\n\n\n

In another sign of concern brewing in money markets, analysts cited the three-month Libor, which rose to 12.5 basis points, a four-week peak, reflecting worries over potential stress in the global banking system.<\/p>\n\n\n\n

At the same time, there appeared to be few signs that institutional investors took an overleveraged position in Evergrande that would spark a liquidity crisis, said Robert Sears, chief investment officer at Capital Generation Partners.<\/p>\n\n\n\n

“So far most of the negative action [has] been in the Chinese property sector,” he said. “I don\u2019t think this has had a major impact on most hedge funds so far.”<\/p>\n\n\n\n

Andrew Left, founder of Citron Research, which in June 2012 published a report that said Evergrande was insolvent and had defrauded investors, was also not expecting widespread pain.<\/p>\n\n\n\n

“I don’t think that this is going to be the straw that breaks the global economy’s back,” he said.<\/p>\n\n\n\n

Indeed, some investors said that Monday’s price declines should have been expected given the rally in the S&P 500 over the summer and concerns ranging from the debt ceiling debate in Washington to the prospect of higher capital gains taxes.<\/p>\n\n\n\n

“Coming into September we thought that with valuations and optimism so high that investor sentiment seemed a little vulnerable to a dramatic but short-lived shift,” said Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management.<\/p>\n\n\n\n

Reuters<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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