(The Street) - The woes of China’s Evergrande, the largest real estate debtor in the world, are challenging investors’ faith in Chinese financial markets, says Mohamed El-Erian, chief economic advisor for Allianz.
Evergrande’s debt totals $300 billion, and it’s not seen capable of paying it all back.
The company’s situation, along with China’s regulatory crackdown on industries such as technology and casinos, is “shaking this notion that China is an investable market,” El-Erian told CNBC.
“What’s happening in China is shaking key [tenets] of this global investment theme, ... which has been that government will always stand behind the financial sector. It’s not.”
Some have likened Evergrande’s crisis to Lehman Brothers’ collapse in 2008, which led to a reckoning for the financial system and a crash in U.S. financial markets.
But “I don’t think we’re there,” El-Erian said.
Neither does Ryan Detrick, chief market strategist for LPL Financial.
“First, [Evergrande’s] dollar bonds will likely get restructured, but most of the debt is in global mutual funds, ETFs, and some Chinese companies -- and not banks or other important financial institutions,” he wrote in a commentary.
“Remember, Lehman Brothers was held on nearly all other financial institutions’ books, so not nearly as many institutions will be impacted by this versus Lehman.
“Second, we think the odds do favor the Chinese communist government will get involved should there be a default. …
“Finally, Evergrande has tangible assets that can be sold off to settle financial obligations. … Remember, Lehman didn’t have hard assets it could sell off.”
By DAN WEIL
SEP 20, 2021
