The price of Evergrande stock fell 48% in September while the stock has lost more than 85% of its value since the start of the year, with the collapse of the company appearing imminent amid its struggles to face a huge debt burden of 300 billion dollars.
So far this morning, Evergrande (HKEX: 333) is losing another 10% to HKD 2.28 in Hong Kong as the company reportedly offered properties to key lenders as pressure continues to mount for management to respond.
Evergrande is China’s largest real estate group and the company has interests in several areas of the economy. Its collapse could be bad news for global markets and the country’s financial sector, as it could force banks to liquidate assets to consolidate their balance sheets before a seemingly imminent default.
Can Evergrande stock continue to fall and how bad could its bankruptcy be for financial market stability? In the following article, I will try to shed more light on these questions.
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Evergrande Share – Technical analysis
The price of Evergrande stock has collapsed to its lowest level since 2011, as market participants appear to expect the company to implode completely amid a seemingly imminent default on its large debt.
Banks have already been warned that they will not receive interest payments from the company on a group of loans that are due on Monday, while a set of bond coupons due to mature Thursday may fail. get paid either.
According to its latest financial report, Evergrande had a total of $ 300 billion in long-term loans that it has gradually accumulated to finance the development of its real estate projects during a booming phase of the Chinese real estate market. .
YCharts data shows the scale of the impact of this event on the company’s valuation as Evergrande’s market capitalization fell from around $ 50 billion in 2017 to less than $ 5 billion this morning.
So far, the stock is perilously approaching its all-time low of HKD 1.83 and could soon reach that mark if more negative news about its debt continues to flow. The monthly chart above shows the magnitude of this drop, with the Monthly Relative Strength Index (RSI) hitting oversold levels for the first time since the stock began trading on the Hong Kong Stock Exchange while that the MACD has plunged to the lowest levels in its history. .
Evergrande Stock – Fundamental Analysis
The Evergrande crisis could turn into a systemic problem if the company is forced to liquidate its assets, as this could have a ripple effect on the financial sector both in China and abroad.
Banks exposed to the collapse of Evergrande’s business will likely have to write down the loans they had made to the company, which could cause their capital ratios to tighten.
As a result, affected financial institutions would have to liquidate other assets – usually the riskiest ones – to increase their capital buffers, which could lead to a market-wide sell-off.
So far this morning, US equity futures are taking a hit with the Dow Jones Industrial Average (DJIA) down nearly 2% while the S&P 500 is down similarly 1.8% .
Some analysts have likened the Evergrande debacle to the Lehman Brothers Chinese event and that might be true given the extent of the company’s tentacles in the country’s national economy and around the world.
According to a document leaked in 2020, the number of banks exposed to Evergrande was around 249, including 128 financial institutions and 121 non-financial entities.
Data collected by UBS indicated that two short-term coupon dates could trigger things for Evergrande. These are two coupon payments that must be made by the company on September 23 and 29.
Meanwhile, the company has planned three more coupon payments in October that could “seal the deal” for the battered Chinese real estate developer if it fails to meet those obligations as well.
Overall, markets appear to be reacting negatively to the potential collapse of this important piece of the puzzle of the global economy and the ripple effects of a seemingly impending default could be seen throughout the week as a deleveraging event appears to be unfolding.
