China: Systemic risks to be avoided following the fall of Evergrande – Natixis

FXStreet Insights Team FXStreet

As a follow-up of the immediate spillover effect of Evergrande, strategists at Natixis focus on China’s real estate sector and analyze the future implications.

What’s next for China's real estate sector?

“We expect more private and small real estate developers to fall with tighter regulations and weaker profit generation, especially for the firms with high leverage.”

“A key question is whether the fall of Evergrande will trigger a domino effect and pose systemic risks. The answer is systemic risks will be avoided in the run-up to the 2022 Party Congress given its historical importance. However, this would also imply China Evergrande's debt crisis may snowball down the road considering economic growth will not be here to awash financial losses as was the case in the past.”

“The most likely scenario is Evergrande may be forced to sell assets at a discounted price, but finding a white knight will be challenging given the large corporate size.”

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