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China's Evergrande Crisis: A Real Threat to U.S. Stocks?

1 5 9
21.09.2021

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Many investors had probably never heard of Evergrande (EGRNY, $10.90) prior to Monday morning. But once the massive and massively indebted Chinese real estate company sparked a selloff sweeping from Asia through Europe and on to the U.S., anxious chatter about contagion and a potential global credit crisis seemed unavoidable.

Evergrande, you see, is facing a liquidity crisis. And it very well might default on coupon payments owed to foreign bondholders due in just a matter of days.

That could be just the beginning, the fearful thinking goes. After all, Evergrande's total pile of debt comes to $300 billion. A default or series of defaults could spread panic in credit markets well beyond China's shores.

Pessimists see these developments and say we've been here before – and not that long ago, either. A worst-case scenario, the bears contend, is that China lets Evergrande implode in a scenario similar to what befell Lehman Brothers almost exactly 13 years ago. The fall of the once-mighty Wall Street titan wreaked havoc on global markets and became a sort of ground zero for the Great Financial Crisis.

No wonder, then, that the S&P 500 was off as much as 2.9% at one point in the trading session, and the Dow Jones Industrial Average lost more than 600 points by the closing bell.

But market strategists for the most part argue that although Evergrande presents a threat, and uncertainty reigns supreme, a Lehman moment is a remote possibility. True, the Chinese government appears more likely to make an example of the company than to save it – but that hardly means global disaster is preordained.

Evergrande isn't just enormous, but sprawling. Thus, its $300 billion of debt is just one area of concern.

The company is a property developer at its core but also has........

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