And Christopher, just a follow up on what you said about this being insular to the Chinese economy and the real estate sector, does that mean that outside investors, foreign investors are unable to buy bonds or debt that may be tied to Evergrande and that's why there wouldn't be a contagion? Or is there something else at play?ĬHRISTOPHER VECCHIO: Well, I do think right now, where things stand from the Chinese perspective, foreign investment has been dwindling in recent years. If not, something that causes just a little bit of a headache during this Fed week. But the direct impact, the financial system contagion should be well contained. I do think that there are some concerns for various pockets of the US economy here. Like we saw the steel producers there, we saw Deere down as well, Caterpillar down. And China as the world's second largest economy, a significant consumer of industrial metals, of energy, that could have profound effects on various producers. I don't necessarily see this becoming something that tips China into a recession right now, but it could prolong a significant economic slowdown. So this really is a question about whether or not policymakers in China will step in. But with respect to what Ben Bernanke said about contagion back then, subprime mortgages were packaged and sold all over the world, whereas Chinese property debt really is more insular to the Chinese system. First and foremost, China's property sector is actually twice as large as the United States is at the time that Lehman Brothers went under. So why this time with China, should we feel that there's no contagion? Because that's what we keep hearing.ĬHRISTOPHER VECCHIO: So there's two different issues relative to the 2008 episode.
Not an exact quote, but that's essentially what he said. And I'm thinking back to Ben Bernanke's comment of March 2007 when subprime mortgages here in our country started to blow up. Let's roll back the clock a little bit and help us understand what's different about a potential collapse of a Chinese property giant versus what we went through in 2008. Well, yeah, understandably Christopher. So right now, these Chinese concerns, the lack of commentary from Chinese officials arriving ahead of this Fed meeting in which a taper is anticipated, it's giving some investors here in the United States some jitters. But when you look at other Chinese names like Lenovo or Bank of Communications, we're not talking about that much significant pressure here. And, of course, Kaiser group, apologies if I'm mispronouncing any of these names, those have seen some additional pressure as well.įinancing groups like Fortune Star, that has seen its bond yields go up as well. Sinek has seen its bond yields rise by several basis points in recent days. We've seen Sinek group, those shares are down about 87% today before being halted. Now, it is the mid-autumn festival in China, so policy officials have been quiet even after this weekend in which Evergrande problems seem to have deepened.īut right now, when you look at what's going on in the Chinese bond indices, it appears that this is still contained to the real estate sector or those sectors adjacent to the real estate sector. And now, we have this concern coming out of China. These last two weeks of September, the first week of October tend to be the worst time of the period for US equities. We're also in the seasonally worse period of the year for stocks. We have the Fed meeting this week, of course, in which we've seen US economic data start to weather the Delta variant concerns, increasing the odds that we do have some semblance of a taper announcement or hint of a taper coming at this Wednesday's meeting. You know, this is really arriving at an interesting time for markets right now. From your perspective, from how you're looking at this, I guess, how major of a global market problem could this potentially be?ĬHRISTOPHER VECCHIO: Hey, Sean, and so thanks for having me. So trying to- obviously, investors very concerned about what this could mean for global markets. For more on the sell off and what this means in terms of the global story, we want to bring in Christopher Vecchio.
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