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Evergrande: Stricken Crisis Rattles Economy


In the past few days, bad news has come from China, Evergrande Group is threatened to crash after going through a hard time paying off its debts and interests. Evergrande Group is a Chinese corporation with eight subsidiaries ranging from real estate to health. Most known as the property giant, the real estate business has more than 1.300 projects spread across 280 cities of China. CNN reported that Evergrande has to pay the interest of some loans with a total of US$100 million or Rp1,4 trillion due this weekend. The company also stated that the sale of property assets currently owned couldn't pay off the piling up debt in a total of US$300 trillion or Rp4.275 billion. Daniel Fan, a credit analyst at Bloomberg Intelligence, stated that the company has been restructuring its debts after seeing no substantial results of assets release. According to him, the first thing they need to do is stabilize the wealth management product owner as it can turn into a social problem.


As a result of an unfavorable attitude against Evergrande, the benchmark stock price index of the Hong Kong stock exchange (Hang Seng Index) fell badly on Monday (9/20), trading. The Hang Seng Property Index plunged 5.9%, while Ping An Insurance's, as the largest insurer by market value, had its share price fall 7.3%. Other than that, fears are mounting that the company will go from a liquidity crisis to a solvency problem, forcing the global stock markets to take a risk-off stance. With the China Evergrande Group crisis, -0.44%, as the catalyst, the S&P 500 SPX, -0.08% in the US had been relatively impervious to Evergrande news, firmly violating the 50-day moving average of the US benchmark index. On the other hand, investors are concerned about the possibility of the Evergrande contagion and a potential debt ceiling crisis in Washington. However, a collapse of Evergrande is unlikely to cause an emerging market crisis and spread, leaving the global markets relatively untouched because the majority of the company's debts are in RMB, and just a tiny portion is in US dollars or other international currencies.


In Indonesia, the Jakarta Composite Index (JCI) had dropped more than 1% to below Rp6,000 before reversing course and closed at Rp6,060,757 or down 0.26% on Tuesday (9/21). Foreign investors sold Rp427 billion worth of stock, indicating market players' fears about China's second property giant, Evergrande Group's potential collapse. After the fall, the JCI managed to rebound and ended above the 100-day moving average (100-MA) and now the JCI is below the MA 50 and 200. Although the market is still worried about the liquidity crisis of Evergrande Group, stock market players have begun to ease their concerns, marked by the strengthening of the majority of Asian bourses on (9/21). The rupiah was able to strengthen against the US dollar in the spot market due to the publication of Bank Indonesia’s middle rate and current monetary policy. According to Hendriko Gani, Analyst of Sucor Sekuritas, the number of Evergrande defaults, US$300 billion, was still low compared to the 2008 financial crisis, which is way more than quadrupled, totaling over US$600 billion. Aside from that, he also believes the JCI would be able to stay over Rp6,000 in the future. “So far, the JCI has stayed in a sideways trend. The likelihood of surviving beyond 6,000 is still great," he said on Wednesday (9/22). Regardless, Evergrande's bankruptcy will have little impact on the Indonesian capital market due to the Chinese government's efforts to overcome the problem. The impact on the portfolio will also be minimal since the capital market will reflect domestic fundamental conditions rather than global market conditions as Indonesia's economy develops.


Sources

Bloomberg

Financial Times

CNBC International


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