Evergrande Update: 33% of China’s property developers face a real risk of default – S&P

Dhwani Mehta FXStreet

Analysts at S&P Global Ratings warned in a research note on Friday, amidst the ongoing China Evergrande crisis, a third of the country’s property developers could face a “real” risk of default, with about US$84 billion in debt maturing by the end of next year, per South China Morning Post (SCMP).

Key takeaways

“More than half of its rated portfolio of Chinese property developers are “most at risk” under such a scenario as their bonds are rated as junk, from “B-” to “B+”, or two levels below investment grade.”

“The entities have also made heavy use of funding via joint ventures and trust loans, given they have been largely shut out of more conventional funding,”

“New regulations and weak sentiment are squeezing these capital channels.”

“The idea that entities may be abruptly deprived of such funding, threatening refinancing plans and potentially triggering defaults, is a large part of our scenario analysis.”

Meanwhile, it was reported earlier on that Evergrande, the world’s most indebted developer, made another debt payment of USD47.5 million ahead of a Friday deadline, averting default for the second time in two weeks.

Evergrande’s liquidity crunch amounts to more than $300 billion in liabilities, leaving investors on the edge.

Market reaction

Amid negative earnings from Wall Street giants, Amazon and Apple Inc, the S&P 500 futures are shedding 0.43% so far. The Asian stocks are also mostly lower after ECB’s disappointment and worse-than-expected US Q3 GDP data.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

AUD/USD remains depressed 0.7000, awaits FOMC Minutes

AUD/USD struggles to capitalize on its recent recovery move and trades with a negative bias below 0.7000 in Wednesday's Asian session. Amid geopolitical uncertainty, the US Dollar attracts some dip-buyers after a fresh leg up in US bond yields, keeping the pair under pressure despite hawkish RBA expectations. All eyes now remain on the FOMC Minutes.

USD/JPY holds firm near 158.50 ahead of Fed Minutes

USD/JPY hangs close to a one-and-a-half-week high near 158.50 in the Asian session on Wednesday, with bulls now awaiting a move beyond the 200-day SMA hurdle before positioning for further gains ahead of the FOMC Minutes. Meanwhile, a fresh leg up in US bond yields revives US Dollar demand amid geopolitical uncertainties, boosting the pair amid dovish BoJ commentary.

Gold retraces gains and nears two-month lows at $4,104

Gold retraces Tuesday’s gains on Wednesday and resumes its broader bearish trend, with the US Dollar appreciating across the board, as investors brace for the release of the minutes of the latest Federal Reserve meeting. The XAU/USD pair trades below $4,120 after retreating from the $4,180 area on Tuesday, drifting closer to the two-month low at $4,104.

Dogecoin extended correction and weakening momentum raise downside risks

Dogecoin extends its losses, trading around $0.090 down more than 5% so far this week. Bearish pressure is strengthening, with short positions reaching a one-month high and traders in overheated conditions. Meanwhile, weakening momentum indicators are also hinting at further losses in DOGE. Derivatives data shows cautious signals among traders.

Indian Rupee hits fresh four-month low, RBI hikes Repo Rate to 5.5%

The Indian Rupee weakens significantly against the US Dollar after a muted response, following the Reserve Bank of India’s monetary policy meeting on Wednesday. The USD/INR pair jumps to near 96.72, the highest level seen in four months. In the policy meeting, the RBI decide to hike its Repo Rate by 25 basis points to 5.5%, the first hike since February 2023.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.