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What Chinese Developer Evergrande’s Debt Crunch Means for U.S. Investors: Ed Yardeni

Debt tightening involving China’s second largest developer grabbed the attention of investors last week.

Evergrande, the Shenzhen-based company, is facing a debt default of around $ 300 billion. The crisis echoes the bankruptcy of Lehman Brothers, which marked its 13th anniversary last week, a development that at the time sent shockwaves through global markets.

Ed Yardeni, president of Yardeni Research, says Evergrande is unlikely to have consequences as severe as the Lehman bankruptcy when the global economy and credit markets collapsed. Instead, he sees it as analogous to a different event an even decade earlier.

“If it’s similar to anything, it’s similar to long-term capital management, which is the calamity that happened in 1998, but was dealt with very quickly by the Federal Reserve and the big banks and it had no global implication, “Yardeni told CNBC”Trading nation” Friday.

As with the Long-Term Capital Management hedge fund, Yardeni sees government intervention in Evergrande preventing collapse and contagion.

“The reality is that it’s too big to fail, and I think the Chinese government is going to step in big. I don’t think they are going to save management… but it will be restructured and in a way that will. not. will hurt the economy there too much and will not affect the global economy or financial markets like Lehman did, ”Yardeni said.

Even if an Evergrande-related crisis is avoided, Yardeni does not see chinese markets bounce back anytime soon. He says Evergrande is just one reason investors are avoiding the region.

“If you are investing in Chinese stocks, there have been a lot of reasons to get out, quite frankly,” Yardeni said. “The Chinese Communist Party that runs the government there interfered, intervened in the markets, interrupted corporate governance, told companies how they should run their business. And so I think it is. a good opportunity here just to lay a low profile. I wouldn’t want to buy on the dips in China. “

Beijing has tightened regulations on sectors such as technology and private education in recent months. This heightened surveillance has lowered their markets and Chinese stocks listed in the United States.

Persistent uncertainty in China could be a boon for US markets, he adds.

“There are a lot of global investors who want to invest in areas where they feel comfortable, where there are corporate governance rules, where there are contractual laws that are followed. I think that a lot of money went global and could have been tempted to go to China could very well come to the United States, ”he said.

Yardeni has a target price of 5,000 on the S&P 500 for the end of 2022, although he says the benchmark could reach that level sooner. The S&P 500 closed on Friday at 4,433.


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