Finance

Global debt: China’s Evergrande spells fear, but US indicators are the biggest risks

Tuesday, 21 September 2021 16:31
Global debt: China’s Evergrande spells fear, but US indicators are the biggest risks

(Ecofin Agency) - The main stock markets of Europe and the U.S. started this week on a bad note with declining values. This reflected investors’ sentiment in a context where the debt of Chinese property developer Evergrande has worsened and the US Central Bank’s measures to limit asset purchases are awaited.

Commercial banks in China reported that Evergrande could not meet the interest payments due on its loans. Subsequently, its creditors began selling bonds at a discount of 30% from their issue price, according to financial market analyst Michel Santi. The situation is quite worrisome since Evergrande’s debt now reaches 20 times its stock market value and 37 times the value of its net income for the 12 months ending June 30, 2021. Also, the company has been loss-making for the past two years, data from Capital IQ showed.

In the U.S., the Central Bank should find ways to balance the government’s debt level and limit asset purchases. Some analysts expect the Federal Reserve to start lessening its easing policy. Since the subprime crisis in 2008, the institution has expanded its balance sheet 10 times. In 2020 alone, it acquired a little more than $2.9 trillion worth of bonds with various maturities.

In a recent report on global debt, the Institute of International Finance stressed that China posted the fastest debt growth in the first six months of 2021 (+$2.3 trillion). Its oustanding debt stock has now reached $55 trillion, 40% of which is accounted for by non-financial companies. In this bleak picture, two factors go in China's favor.

First, China is the country where the corporate debt-to-GDP ratio has dropped the most over the period, from 163% to 157%. Also, the household debt remained at 60.2% of GDP, compared to 77.5% for mature markets (the UK, Eurozone, and US) and government debt remained at 65.4% of GDP, compared to 130% for others.

Although significant, Evergrande's debt remains low compared to its total asset volume (about $367.7 billion). The company also remains creditworthy in the long term. Its debt-to-equity ratio fell by the end of June 2021. Another good point is that Evergrande remains a mid-sized company on the Chinese stock markets. The company is the 23rd largest by market value for the Chinese real estate sector and the 580th largest listed Chinese company.

There is more to worry about in the US, where the financial asset market remains stagnant. Big investments in tech stocks are risky since several GAFAM companies face regulatory issues, the outcomes of which remain uncertain. The FED reported in July 2021 that growth bounced back at 6.5%, but inflation also grew at 3.9%.

Moreover, the US government still needs resources to even the labor market. The unemployment rate has slid but it is also because there are fewer job seekers in some sectors, according to analysts. The Federal Reserve needs to raise interest rates for bond investors as their current yields are falling due to rising inflation and limited alternatives. The lower-rated debt market jumped to an outstanding amount of $3 trillion earlier this month.



 
Telecom


 
Public Management


Ecofin Agency covers the news from 9 business sectors in Africa: Public management, Finance, ICT, Agribusiness, Electricity, Mining, Oil and Gas, Comms and Laws. Ecofin Agency is also creating and management specialized medias, in paper and on the web/social networks, for institutions or African publishers.

AGENCE ECOFIN

Mediamania Sarl
Rue du Léman, 6
1201 Genève
Tél: +41 22 301 96 11

REDACTION
redaction@agenceecofin.com

Public management
Aaron AKINOCHO
Borgia KOBRI
Moutiou ADJIBI

Finance
Idriss LINGE
Walid KEFI
Chamberline MOKO

Agribusiness
Espoir OLODO

Electricity
Gwladys JOHNSON

Oil and Gas
Olivier DE SOUZA

Mining
Louis-Nino KANSOUN

ITC 
Muriel EDJO

Comms
Servan AHOUGNON

Cameroon
Brice R. MBODIAM
Sylvain ANDZONGO
Monique MAY
Julienne Rose SENDE

Togo
Fiacre E. KAKPO
Waliyullah TAJUDEEN
Séna AKODA

Niger
Sandrine GAINGNE

Gabon
Stephane BILLE
Pierre-Celestin ATANGANA

Desk
Stéphane ALIDJINOU
Souha TOURE
Vahid CODJIA
Diane ZODEHOUGAN
Hikmatu BILALI

Translation
Schadrac AKINOCHO
Mouka MEZONLIN
Firmine AÏZAN



Digital
Omar SOKHNA
Mamadou DIOP
Bacary MANE
Abdel Razak MOULIOM

Digital Marketing
Jérémie FLAUX
Geraud ACHI
Jean Christian BERNARD
Franck FOUTE

Web publishing
Bakoly RAHARISOA
Rina RAMANANDRAISOA
Hasina RAJEMISON

Development
Dominique FLAUX

 


 
REGIE COMMERCIALE
AGENCE ECOFIN
Rue du Léman, 6
1201 Genève
Tél: +41 22 301 96 11
Fax: +41 22 301 96 10

Benjamin FLAUX
bf@agenceecofin.com 
Tél: +41 22 301 96 11 
Mob: +41 78 699 13 72

Voir page 
Nos services
 

 










 



Ecofin Agency is a news agency for economic and sectorial information. It was created in 2010 and it website was launched in June 2011.

Please publish modules in offcanvas position.