China's Evergrande crisis: HSBC CEO fears spillover effect on capital & bond markets

Evergrande's crisis has sent jitters across global equity markets in the past few days as several experts believe there could be a spillover effect on other sectors of China's economy. As a result, the global economy may also be impacted, especially institutions that have exposure to Shenzhen-headquartered Evergrande. However, while panic selling did take place during Monday's trade, global equity markets have rebounded strongly ever since news emerged that Evergrande may survive bankruptcy.

Before the news, several experts believed that China's second-largest real estate player will default on upcoming dues this week due to its large outstanding debts. One of the interest payments, worth $84 million on its bonds, is due on Thursday, and another worth over $47 million is due on September 29. As a result, shares of Evergrande tanked 7% on Tuesday before crashing another 10% a day after. The company's shares have fallen nearly 80% since the beginning of this year. However, the stock did have a rebound of approximately 18% on Thursday.

Speaking of the Evergrande crisis on Wednesday, the CEO of HSBC said that while the crisis will not affect his bank, he would be foolish to ignore it completely.

HSBC CEO believes Evergrande crisis can have spillover effects

"I’d be naive to think that the turmoil in the market doesn’t have the potential to have a second-order and third-order impact. Clearly, with the changes that are taking place in the Evergrande situation, it’s concerning. There is a potential for second and third-order impact, particularly on the capital markets and the bond markets, and we’ve got to stay close to that," a Bloomberg report quoted HSBC CEO Noel Quinn as saying at a Bank of America conference on Wednesday.

Evergrande Group is world's most indebted real estate developer

Evergrande is the world's most indebted real estate developer as it has debts of over $300 billion. The amount of debt is equivalent to 2% of China's GDP, and this has increased ever since the country tightened its lending rules. However, the fears surrounding Evergrande's debts decreased on Thursday after the company said it would pay interest to bondholders in China. So far, it is unknown whether the Chinese government intends to come to the real estate developer's aid if the situation turns untenable and poses a risk to the economy, with the biggest hint coming from state-owned Global Times whose Editor-in-Chief and Chinese media stooge Hu Xijin telling the company to not bank on a bailout and rely on the markets for salvation and not the government.

Why were equity markets in jitters this week?

In the case that Evergrande files for bankruptcy, it would have a spillover effect on other domestic sectors, which in-turn would have an impact on global economies. As a result, several institutions would need to sell their assets elsewhere, which could include equities, to cover up their losses in China.