Evergrande: How a Chinese Real Estate Company Caused Chaos in the U.S. Stock Market
- October 4, 2021
- Phil Cannella
- 0 Comments
Chinese real estate developer Evergrande became the center of international attention as market investors around the world waited with bated breath to see if the company would be able to meet their financial obligations. Evergrande, one of the largest development companies in China, owed millions in interest payments and was at risk of defaulting on more than $300 billion worth of debt. As the company’s September 23rd deadline approached on an $83 million bond interest payment, investors in Hong Kong and China dumped Evergrande shares, setting off a drop in the Hang Seng index which spread to stock market indices in the United States and across the globe.
While Evergrande and its creditors were able to come to an arrangement, US markets sunk 2% in response and the damage this incident may have caused to at-risk investors is immeasurable. If Evergrande had defaulted on its debt (which is still a very real possibility), it would have been one of the largest debt defaults in history, second only to the $600 billion collapse of Lehman Brothers—which served as a catalyst for the 2008 financial crisis. Although global markets quickly rebounded from the Evergrande correction, this cycle could easily repeat itself when Evergrande is required to make more interest payments to bond holders throughout the rest of the year.
Evergrande’s situation is somewhat unique, thanks to their inextricable connection with the Chinese government and with the numerous financial institutions and bond holders to which it owes money. After its founding in 1996, the company expanded rapidly thanks to a $300-billion-dollar infusion of cash that allowed it to purchase more than 1,300 development projects in more than 280 cities across China. The Evergrande Group is also involved in other industries including wealth management, electric car manufacturing, beverages – it even owns one of China’s most popular soccer teams, Guangzhou FC. Much like U.S. financial institutions during the 2008 crisis, Evergrande may have become “too big to fail,” and it seems that the Chinese government agrees.
In response to Evergrande’s debt woes, the People’s Bank of China released some 90 billion yuan (nearly $14 trillion U.S. dollars) in stimulus money to stabilize markets in advance of a potentially massive debt restructuring that would be the largest in China’s history. Some readers may recall the restructuring of Greece’s debt in 2012. Greece’s debt situation threatened to tear the entire Eurozone apart, and that was over a mere $200 billion dollars’ worth of debt. Just like Greece’s default had far-reaching consequences for the Eurozone, Evergrande’s debt crisis could lead to bigger problems for China in the future and potentially the United States. If the potential for a default caused stock market drops around the world, imagine what would happen if the Chinese government experienced a debt crisis like the one the U.S. had in 2008. China isn’t the only country facing a potentially devastating debt default; the United States is staring down the barrel of what may potentially unravel into the largest debt crisis in history. As President Biden and Congressional Democrats fight to authorize trillions of dollars in new spending, including a suspension of the federal debt ceiling, Republicans have dug in their heels in opposition. A growing number of Congressional Republicans have agreed to vote against any increases to the debt ceiling, and if they cannot come to an agreement with Democrats, the U.S. will default on more than $29 trillion in national debt. This would be the largest debt default in history and if it were to happen, it could cause an extended recession (or worse) with the potential to wipe out any stock market gains made during the COVID-19 economic recovery. The fact of the matter is, the United States has never defaulted on their financial obligations before and doing so would have unknown and possibly devastating consequences.
If your savings are held in high-risk securities-based financial vehicles like stocks, bonds, and mutual funds, the Evergrande situation and other debt crises around the world threaten to crush your nest egg. At Crash Proof Retirement®, we have a salaried designed team responsible for researching and developing uniquely tailored systems using investments exclusively based in the financial life insurance industry, which are guaranteed to credit interest comparable to securities-based vehicles while also protecting your principal investment during a stock market crash. More than 5,000 consumers in or near retirement have found safety and peace of mind using the proprietary Crash Proof Retirement® System and it is never too late to get started. With a Crash Proof Retirement®, you won’t have to worry about debt-ridden companies on the other side of the world damaging your nest egg nest egg and you can protect yourself should the government default on their financial obligations. To find out more information, schedule to speak with one of our licensed retirement phase experts by calling 1-800-722-9728 or by visiting crashproofretirement.com.
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