Wednesday, January 26, 2022

Evergrande Still Looms Large Over Asian Markets’ 2022 Outlook

With the ghost of Evergrande still looming over Asian economies in 2022, the new year is already filled with further negative news surrounding the Chinese property giant. With fresh fears of further defaults and suspended stocks, Asian markets are likely to be affected by Evergrande’s ongoing difficulties in the long run.

Evergrande, the world’s most indebted developer, recently extended voting on the subject of delaying early repayment of the 2023 6.98 percent yuan bond. The company held an online creditors meeting for the onshore bond, in which holders have been able to vote on a proposal to roll back its repayment in the original schedule from January 8 to July 8.

The move will help the company address further defaults after Fitch Ratings announced that Evergrande defaulted on two interest payments that were due after a grace period expired on December 6, 2021.

Officially, Fitch downgraded Evergrande’s rating to “restricted default,” which indicates that the company has not ceased operations and has not initiated formal legal proceedings in filing for bankruptcy.

China Evergrande Group has been subject to declining stock prices throughout 2021, as the company’s stock price reached an all-time high of $31.55 as of October 20, 2017.

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The new year got off to a rough start for Evergrande shares as the company was forced to suspend business following orders to demolish 39 buildings in a large resort-style development in the southern province of Hainan.

However, it’s also worth noting that Evergrande’s shares have corrected somewhat in the early stages of 2022 after their most recent setback, and if the company can overcome more defaults, we could see such a huge jump in value. The collapse may see an even more sustained recovery. of the shares of the firm.

Asian market analysts are not optimistic about Evergrande’s long-term prospects, however, as more Chinese property firms have been facing pressure in recent months from Beijing to halt their overdues.

“I think the worst is yet to come,” said Himanshu Porwal, Corporate Credit Analyst at Seaport Global Emerging Markets. “A lot will depend on what the Chinese government does in terms of liquidity measures … but it’s been four months so I don’t know what they will be waiting for.”

So, taking into account Evergrande’s ongoing difficulties, what can we expect from the Asian markets in 2022? Could there be a brighter year ahead?

Significant consumer demand and stimulus spending have helped global economies navigate the ongoing COVID-19 pandemic somewhat more comfortably, according to JPMorgan Chase’s Long-Term Capital Markets Assumption Report.

“Globally, slower growth in 2022 is almost inevitable as growth following the initial pandemic gives way to growth closer to trend,” RBC Capital Markets’ forex staff warned in their strategy document for the new year.

“Amid a maturing recovery in Northeast Asia, the nexus of Asia-Pacific economic growth is shifting to Southeast Asia,” he wrote. “The retreating pandemic and higher commodity prices have catalyzed a bright growth outlook for Malaysia and Indonesia, although the Omicron version has injected some uncertainty recently. Assuming that the economic reopening is not reversed and market volatility has calmed down, 2022 is expected to provide a positive backdrop for both the undervalued Malaysian ringgit and Indonesian rupiah.

Inevitably, Evergrande continues to influence the Chinese economy, which is surprising considering that real estate makes up as much as 30 percent of the country’s GDP.

Jan Hetzius, chief economist at Goldman Sachs, said he expected Chinese policymakers to “prevent large downside risks, but with the intention of doing ‘just enough’ rather than significantly loosening monetary and fiscal policy”.

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“Policy makers place increasing weight on objectives other than near-term GDP growth, including income distribution, financial stability and decarbonisation,” he wrote. “Combined with demographic constraints, this shift is behind our forecast of a large, but gradual and managed slowdown in the trend of GDP growth. [in China] About 3 1/4% by 2032.”

Despite forecasts of a recession in 2022, not all sectors will be affected equally. Bloomberg has reported that Southeast Asia’s digital economy could grow by 20 percent more than predicted by Google, Temasek and Bain & Co, and grow at a rate of 25-30 percent over the course of the year.

“Given the social restrictions that lured 20 million new online shoppers in 1H alone after 2020’s 40 million and the spread of COVID-19, our base case is that there will be another 16 million next year,” the Bloomberg Intelligence report said. Will be online.” “Extrapolating Bain & Co.’s average gross merchandise value (GMV) per user, as well as taking into account the size of the trio’s estimated online transportation, food, travel and media market – e-commerce GMV could reach $156 billion. This fuels a 28% jump for the region’s digital economy to reach $222 billion versus 2021’s $174 billion.

“The pandemic gave a major boost to the digital revolution, and accelerated the world’s transition to the digital space. During the pandemic, a large number of financial transactions were processed electronically, a trend that is expected to continue,” said Maxim Manturov, head of investment research at Freedom Finance Europe.

With this in mind, digital transformation could offer an oasis of prosperity in a broader Asian market that is still grappling with the effects of China’s real estate crisis. While a broader slowdown is likely, consumer power can help ensure that Asia continues to grow.


Nation World News Desk
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