Big-name investors are navigating the China Evergrande crisis right now by turning to these 8 experts from firms like Muddy Waters and BCA Research
Bearish investors called the Evergrande crisis China's Lehman moment, but investment banks including Citi and Barclays have dismissed that possibility.
"Even then, the reversion to autocracy and large financial imbalances make policy overtightening a major risk for the global economy, now and in the coming years," he added. Junheng Li is the founder and CEO of JL Warren Capital.Li thinks Chinese authorities are trying to manage a soft landing scenario while allowing Evergrande to fail.
"This is why investors believe that the actual balance sheet of the developers is much bigger than reported, even including equity-linked debt instruments," she said,"and that overly stretched balance sheet is not unique to Evergrande, but common to the real estate industry as a whole." To manage the Evergrande fallout, the priority for Beijing will be dealing with consumers who bought pre-paid apartments, he said. In his view, domestic investors, particularly holders of Evergrande's wealth management products, are likely to get hit hard. Foreign investors, while they are not the specific target of these actions, are far down the list of parties that the government is worried about, he added.
Investors are also concerned with whether the Evergrande crisis will become a widespread debt crisis, affecting other developers and the entire real estate sector in China. As for investors of Evergrande, debt holders will take a hit based on seniority, equity holders may very well be wiped out, and domestic banks' profits will also likely be negatively affected. "Already, share prices of several key bondholders such as BlackRock have fallen off sharply," Wang said."More bloodletting is possible."
These debt-fueled"gray rhinos" refer to the likes of Anbang and HNA —"two of the most ambitious, unruly, and unwieldy of China's private companies," which had gone on aggressive acquisition sprees overseas before they"were recently effectively re-nationalized." "Thinking of this as a crisis misrepresents what it is, a concerted effort from the Chinese government to re-nationalize its most unruly private companies, consistent with other regulatory efforts to bring most all global private companies into line," he said. Activist short-seller Carson Block is the founder of Muddy Waters Research.
"My view is that this thing doesn't make economic sense," he said."There obviously is a political reason that this company has not collapsed yet. There's so much that goes on behind the curtain to protect these guys, you cannot figure it out from the outside." He thinks that retail investors will most likely come out of the crisis unscathed."If you bought a bond through your local financial institutions, the local financial institution will basically step up and fully guarantee the repayment of the loan," he said.
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