The Day at a Glance | September 20 2021

The Top

*Concerns among markets increase regarding Chinese authorities not being able to contain the collapse of China Evergrande Group.

*Markets expect the FED to announce a gradual withdrawal of the purchasing program until November.

*The United States House of Representatives will vote on the debt ceiling this week; the Treasury is pushing to increase or suspend the limits on debt.

Economic environment

The real estate market in China raises concerns. In the last few weeks, Chinese real estate company Evergrande Group has had the need to suspend developments in construction and its workers went on strike due to the lack of wage payments. The real estate company`s financial problems have become worse with the government`s new restrictions on the real estate market, and since last week, talks of default risks have grown. Markets expected to see decisive action on behalf of authorities and the Central Bank of China injected 90 billion yuan in the banking system on Friday, and 100 billion additional yuan on Saturday, but little has been done to guarantee that the company will not default, which is something unusual. This has triggered risk aversion in the Chinese market as Hong Kong`s Hang Seng recorded a drop of more than 3% on Monday, led by the drop in stocks among real estate companies (Shanghai is closed due to an official holiday). Additionally, prices of debt notes in dollars issued by Chinese companies that are considered high risk have recorded their greatest decrease in a year. This has occurred along with a drop in raw materials markets and other equity markets around the world as the negative sentiment has been rubbed off on them. The greatest fear is that Evergrande`s collapse could trigger financial instability in China and derail the country`s economic recovery after the pandemic. Evergrande is the real estate company with the largest amount of liabilities in the world (300 billion USD), and represents 16% of the debt market in dollars among China`s high risk companies, and on Thursday, must face interest payments of up to 83.5 million dollars. The real estate market in China has led growth in the world`s second largest economy in the last decades – and close to 40% of China`s family`s assets are in real estate, which is why a collapse in said market would lead to serious complications for China`s economic recovery.