Why Everyone Is So Concerned About Evergrande?

Why Everyone Is So Concerned About Evergrande?

2021-09-24 • Updated

You have probably heard of China’s company Evergrande which can’t pay its bills and may collapse. But why does this company have such a strong impact on the global markets? Bitcoin crashed by 10% in 24 hours on bankruptcy fears for China’s Evergrande Group and then dropped the next day as well. What? Bitcoin and China’s real estate company? How are they even connected? Let’s find out.

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What is Evergrande?

Evergrande is one of the biggest real estate companies in China. It became famous because of its residential property: it "owns more than 1,300 projects in more than 280 cities" in China. The real estate giant is also engaged in electric vehicles, theme parks, and even a soccer team.

It confuses everyone that this giant company will soon be unable to meet its obligations! It has resulted in chaos in China. Evergrande’s customers and business partners aren’t satisfied: some want their houses built, others want their capital back, and what about the firm’s employees? You got it: complete chaos.

How big is Evergrande’s collapse?

It is said that Evergrande owes nearly $300 billion, which accounts for 6% of the total debt for China’s property sector—to creditors, investors, and other stakeholders.

Market fear

Well, investors remembered the 2008 housing crisis and were afraid that this situation with Evergrande is similar to it and may lead to the overall crisis as well. What does happen usually when fear engulfs the markets? Right, investors start selling riskier assets to park their capital in a safer place and wait out the storm. As a result, the stock market crashed.

Tech outlook

The Honk Kong’s Hang Seng Index (HK 50) has been already having a tough time because of China’s pressure on tech stocks such as Alibaba and Tencent, but Evergrande’s news pressed the stock even more. If the HK 50 drops below the low of September 20 at 23,860, it may drop to one-year lows of 23,160.

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