LONDON: Oil and equities finally appeared to shake off concerns that have plagued financial markets in recent days following the crisis at China’s largest property group Evergrande.
Most economists now believe there is little risk of wider global financial market contagion from the problems at Evergrande which is on the verge of defaulting on its massive $300 billion debt pile.
Indeed, it emerged that funds run by US asset management giant BlackRock and global bank HSBC appeared to have embarked on a “buying the dip” strategy and increased their holdings of Evergrande bonds as the developer’s liquidity crisis was intensifying.
Data by Morningstar reveals BlackRock bought up five different Evergrande dollar bonds through one of its high-yield funds, which had holdings in the developer then worth $18 million, in August.
An HSBC-run high yield fund also purchased Evergrande’s debt over the summer. The Morningstar data revealed the fund increased bond holdings by 38 percent since February, but the value of the fund’s total exposure at $31m declined over the same period due to falling prices.
Ashmore, the emerging market investment specialist, is understood to have the highest exposure with more than $400 million of its bonds. UBS had close to $300 million of exposure to Evergrande bonds.
Patrick Ge, manager research analyst at Morningstar, said: “We’ve seen a few funds adding to China Evergrande between July and August 2021, given widening spreads and attractive valuations. This is in line with what we have heard from some managers where they said that at its current levels, they believe Evergrande is a buy.”
Evergrande’s Hong Kong-traded shares have fallen 85 percent this year and its bonds have also been downgraded by global credit ratings agencies.
Simon MacAdam from Capital Economics said: “A managed default or even messy collapse of Evergrande would have little global impact beyond some market turbulence.”
However, Chinese regulators, who are understood to be looking at breaking the company up, have so far failed to provide any details about how they will resolve Evergrande’s $300 billion debt pile.
China watchers only expect the government to intervene if the company and its lenders fail to agree on how to handle its debts.
JP Morgan analyst, Frank Pan, said Evergrande was likely to go through the same process as developer China Fortune Land, which defaulted on $530m of dollar-denominated debt earlier this year.
Pan said: “That means a standstill for all creditors while allowing operations to continue.”
After a decade of warnings from economist on the threat posed by China’s rising debt levels, Beijing’s financial regulator last year imposed much tighter limits on real estate-related borrowing.
Evergrande has $18 billion of outstanding foreign-currency bonds, mostly held by Chinese banks and other institutions.
Fears persist that China’s property sector, which has been a central engine of the country’s economic expansion, is facing an unprecedented slowdown because of the current tightened credit conditions.
If property companies default on their debts, investors who hold their bonds could find their finances under pressure, forcing them to sell other investments to raise cash, which could in turn impact on other markets beyond property and beyond China.
Evergrande, founded in 1996, is one of China’s biggest builders of apartments, office towers and shopping malls.
It is estimated to have more than 200,000 employees and supports almost 4 million jobs in construction and other industries through 1,300 projects in 280 cities across China.
Evergrande’s founder, Xu Jiayin, was China’s richest entrepreneur in 2017 with a net worth of $43 billion and remains the country’s richest real estate developer.