Wednesday, January 26

Global traders receive Evergrande clemency as BPC adds liquidity


Global markets were offered a reprieve from Evergrande contagion fears on Wednesday as China’s central bank increased liquidity and investors pondered a loosely worded statement from the troubled developer on an interest payment.

The CSI 300 index cut opening losses by as much as 1.9% after an Evergrande unit said a coupon payment with bondholders in private negotiations had been resolved. A short-term cash injection by the People’s Bank of China supported the fragile sentiment, helping to hold risky assets beyond the world’s second-largest economy.

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“I think we may be seeing a temporary respite with some rebates helping to provide a better than expected situation than many would expect,” said Jun Rong Yeap, market strategist at IG Asia Pte. “This also comes along with an injection. of short-term funds by the People’s Bank of China, suggesting that they are monitoring the situation closely and are ready to intervene if the economy is at risk. ”

US equity futures reversed initial losses to climb higher in Asian trading, while the yen, a traditional haven for investors, fell back. Chinese government bonds rallied, and the yield on the 10-year notes was on track to hit the lowest level in about two weeks.

Still, analysts waited for details after the Evergrande unit did not specify how much interest it would pay or when. Some speculated that the company reached an agreement with the note holders to postpone interest payments without having to label the measure a default.

Global investors had been on edge this week waiting for the reaction of Chinese traders to concerns about Asia’s largest junk bond issuer and the crackdown on the country’s real estate sector. About $ 6.7 billion was wiped from the value of Hong Kong’s top four real estate giants on Monday amid a global sell-off of risky assets that trapped even stocks with less tangible ties to China.

Investors are also watching closely as Beijing plans to deal with the situation surrounding the world’s most indebted developer. China Business News, owned by state-owned Shanghai Media Group, urged authorities to manage the pace of fighting risks in the real estate sector and establish a “wall of fire” between the industry and the financial system, in an editorial on Tuesday. .

Evergrande has about 2 trillion yuan ($ 309 billion) in assets, which is equivalent to 2% of China’s gross domestic product, according to calculations by Goldman Sachs Group Inc.

The company’s land ownership unit will make an interest payment on a yuan bond due 2025 on Thursday, according to the exchange’s filing. Meanwhile, China’s central bank injected 120 billion yuan into the banking system through reverse repurchase agreements, topping 30 billion yuan in maturities on Wednesday.

© 2021 Bloomberg


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