The specter of Evergrande still looms over Asian economies in 2022, with the new year having already been littered with further negative news stories surrounding the Chinese property giants. With fresh fears of further defaults and suspended shares, Asian markets are likely to be impacted by Evergrande’s ongoing hardships long into the future.
Evergrande, the world’s most indebted developer, recently extended voting on the topic of delaying the early repayment of a 2023 6.98 percent yuan bond. The company held an online creditor meeting for the onshore bond, in which holders have been able to vote on a proposal to push back its repayment to July 8 from January 8 in the original schedule.
The move will help the company to sidestep further defaults following Fitch Ratings’ declaration that Evergrande defaulted on two interest payments that were due on December 6, 2021 after a grace period expired.
Officially, Fitch downgraded its rating of Evergrande to “restricted default,” which indicates that the company hasn’t ceased operations and hasn’t commenced formal legal proceedings in filing for bankruptcy.
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China Evergrande Group has been subject to dwindling stock prices throughout 2021 as part of a sustained downturn sine the company’s share price reached an all-time of $31.55 on October 20, 2017.
The new year got off to a difficult start for Evergrande stocks as the company was forced to suspend trading 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 stocks have recovered somewhat in the early stages of 2022 following its most recent setback, and if the company can sidestep more defaults, we may even see a more sustained recovery, following such a heavy collapse in the value of the firm’s shares.
Asian market analysts aren’t optimistic about the long-term prospects of Evergrande, however, with more Chinese property firms experiencing pressure in recent months from Beijing to curb their overborrowing.
“I think the worst might be yet to come,” said Himanshu Porwal, Seaport Global emerging markets corporate credit analyst. “A lot will depend on what the Chinese government does in terms of liquidity measures… but it has been four months already so I don’t know what they would be waiting for.”
So, with Evergrande’s ongoing hardships in mind, what can we expect from Asia’s markets in 2022? Could a brighter year be ahead?
According to JPMorgan Chase’s Long-Term Capital Market Assumptions report, significant consumer demand and stimulus spending have helped global economies to navigate the ongoing COVID-19 pandemic in a somewhat more comfortable manner.
“At the global level, slower growth in 2022 is almost inevitable as the initial post-pandemic growth spurt gives way to growth closer to trend,” foreign exchange staffers at RBC Capital Markets warned in their strategy document for the new year.
“The nexus of Asia-Pacific economic growth is shifting to Southeast Asia amid maturing recoveries in Northeast Asia,” they wrote. “The retreating pandemic and higher commodity prices have catalyzed a brightening growth outlook for Malaysia and Indonesia, though the Omicron variant has injected some uncertainty lately. Assuming that the economic reopenings are not reversed and market volatility settles down, 2022 is expected to provide a positive backdrop for both the undervalued Malaysian ringgit and Indonesian rupiah.”
Inevitably, Evergrande continues to impact the Chinese economy, which is unsurprising considering that real estate makes up as much as 30 percent of the country’s GDP.
Jan Hatzius, Goldman Sachs’ chief economist, said that he expects Chinese policymakers to “stem major downside risks, but with an intent to ‘do just enough’” rather than significantly loosen monetary and fiscal policy.
“Policymakers appear to put a growing weight on objectives other than near-term GDP growth, including income distribution, financial stability, and decarbonization,” he wrote. “Combined with the demographic headwinds, this shift lies behind our forecast of a large, but gradual and managed slowdown in trend GDP growth [in China] to around 3 1/4% by 2032.”
Despite forecasts of a 2022 slowdown, not all sectors will be impacted equally. Bloomberg has reported that Southeast Asia’s digital economy may exceed the 20 percent growth that Google, Temasek, and Bain & Co predicted, and could develop at a rate of 25-30 percent over the course of the year.
“Given social restrictions lured 20 million new online shoppers in 1H alone after 2020’s 40 million, and the unabating COVID-19 spread, our base case is that 16 million more will go online next year,” reported Bloomberg Intelligence. “Along with an extrapolation of Bain & Co.’s average gross merchandise value (GMV) per user — while keeping the trio’s estimated online transport, food, travel and media market size — e-commerce GMV may reach $156 billion, fueling a 28% jump for the region’s digital economy to hit $222 billion vs. 2021’s $174 billion.”
“The pandemic gave a big boost to the digital revolution, and accelerated the world’s transition into the digital space. During the pandemic, a large number of financial transactions were processed electronically, a trend that is expected to continue,” added Maxim Manturov, head of investment research at Freedom Finance Europe.
With this in mind, digital transformation could offer an oasis of prosperity across a wider Asian market that’s still reeling from the impact of China’s real estate crisis. Although a wider slowdown is likely, consumer power may help to ensure that Asia continues to prosper.