Daily Brief - Does Evergrande even matter? (Dec 9, 2021)

Financial contagion is something that markets became acutely aware of during the 2008 crisis.

So whenever news of Evergrande come to the fore, some investors become fidgety. Others don’t care.

Fitch is the first rating agency to declare that China Evergrande’s overseas bonds are in default - after a missed payment last week.

Evergrande’s debt crisis for months captured international attention - not last because a lot of the company’s $19bn of debt outstanding were bought abroad.

But should we worry?

The party that does not worry has a clear message: China got you covered.

China’s Central Bank on Monday flooded $188bn of liquidity into the financial system - to ease anybody’s doubts about financial instability.

This reminds of the crash of Long Term Capital Management. When LTCM blew a $4bn loss, the Fed got seriously worried about market stability. Today, Archegos $20bn implosion barely registers.

Point being: regulators don’t like financial instability, and have the tools to manage defaults gracefully.

So keep an eye on Evergrande if you must - but keep things in perspective.

For more on this, please head to the Financial Times.