Chinese Authorities Warn of a ‘Possible Storm,’ PBOC Injects $18.6 Billion Into China’s Markets
Financial markets could still be in for an unruly storm if Evergrande defaults and it causes a credit contagion. According to the Wall Street Journal (WSJ) on Thursday, senior officials from China have told local authorities to prepare for the property developer Evergrande’s demise.
Evergrande amassed a mountain of debt and since the fallout on September 20, the giant corporation has been shaking right down to its foundations. Evergrande was able to clear Wednesday’s debts that were due, however, it’s unknown whether or not Evergrande can fulfill Thursday’s offshore bond debts.
One reason the company made it this far since Evergrande’s downward slide on September 20, is the fact that the central bank injected $18.6 billion into the economy to bolster liquidity. The People’s Bank of China (PBOC) leveraged reverse repurchase agreements for the process.
Market sentiment improved after the injection but the WSJ report notes the central bank may not continue to ease the situation. Eugene Leow, a senior rates strategist at DBS Bank Ltd. in Singapore explained that the injection was meant to bolster sentiment. Leow stressed:
The PBOC’s net injection is probably aimed at soothing nerves as the market worries about Evergrande. While the aim may be to instill discipline, there is also a need to prevent contagion into the real economy or to other sectors.
Robert Kiyosaki: ‘China’s Evergrande Group Cannot Pay’
Estimates show that Evergrande has sold millions of properties to China’s middle class after the billionaire Xu Jiayin created the firm in 1996. Records further show during that time, the real estate giant’s debt grew to more than $300 billion.
Evergrande’s sales have collapsed in recent times and construction workers have stopped working over payment delays. There’s a fear that if Evergrande fails a number of properties will also falter. Reports further show that Evergrande has failed to make payment for the land site in China’s Anqing City of Anhui Province.
The author of “Rich Dad Poor Dad,” Robert Kiyosaki, called the Evergrande situation a “house of cards.”
“HOUSE of CARDs coming down,” Kiyosaki said this week. “Real estate crashing with [the] stock market. China’s Evergrande Group cannot pay. Valuation of properties [is] fake. Will [the] real estate crash spread to [the] U.S.? Yes. Great stock and real estate opportunities coming for smart investors. Disaster for foolish investors,” he added.
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