The bottom line: Stress is easing but still challenging times
Financial stress eased a bit last week after Evergrande dodged the default for now and officials have become more vocal about the crisis highlighting that risks can be controlled.
We may have passed the ‘peak stress’ levels in the Evergrande crisis but it is still too early to make a final verdict. We doubt that Evergrande will avoid a default but has probably just postponed it.
The stress level is still high in China’s property sector due to falling home sales and financing channels being severely squeezed.
The Chinese government should have the tools to control the crisis, as it can underpin home sales by moderate easing of housing policies and support financing to healthy developers through state banks.
We keep a close eye on home sales, though, as it could decline further if buyers become uncertain of buying from developers. Or they could choose to only buy from state owned developers, that are deemed more safe. This would be a serious blow to private developers.
The downward pressure on growth from the property crisis, Covid outbreaks and the energy crisis will continue in coming quarters.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.