Finance Monthly - October 2021

45 Finance Monthly. Bus i ne s s & Economy don’t manage to find liquidity for that, the over-leveraged Chinese banks with a large exposure could start sweating. International contagion If you’re closely monitoring the news, it’s not hard to be left out with the impression that we are at the brink of a global banking crisis and that the “sky is falling”, but we need to be adamant that for the moment this issue is really China- centric and there are only a few mild signs of international effects. Though we should still mention them. As a consequence of the drop in new construction, the Dalian Iron Ore index has to be closely monitored. It’s down a lot from the July heights, and during August, we’ve also seen the biggest drop in steel output. As we know, China is the biggest import market for a number of commodities, which were necessary to fuel the endless construction. With new construction dropping sharply, this poses a serious headwind for the industrial metals. That’s why we also saw the 3 biggest Australian miners shed a combined market cap of $100 billion on Monday 21 September. All in all, the situation is far from pretty, and the global market could definitely take a hit on this news. However, we need to be realistic and agree that the current problem is largely isolated to China since their domestic credit market is over- ON THE HOOK? Some of the biggest emerging market investors hold Evergrande bonds $500M 400 300 200 100 0 Ashmore Group PLC BlackRock Inc UBS Group AG HSBC Holdings PLC Four of the biggest holders of Evergrande’s dollar bonds Source: Data complied by Bloomberg Note: Includes bonds issued by Evergrande and all of its subsidiaries. Ashmore data as of June 30. BlackRock data of June, July and September across different funds. UBS data as of April, May, June and July across different funds. HSBC data as of April, June and July across different funds. Holdings may have changed since this data was published. Disclosure rules vary globally. levered, but international banks don’t have nearly as much exposure as they had in 2008. We believe that international contagion is possible, thus investors need to be careful, though it’s highly likely that this contagion will be limited to only a few sectors and companies that have an especially large exposure to China. For the bigger part of the S&P and European companies, I strongly believe that any panic is unjustified. And for the journalists comparing the current situation to Lehman in 2008, I’ll just point them to one number: Evergrande has $19 billion in international debt, US federal reserve buys $120 billion bonds per month. Let that sink in.