What Happens if EVERGRANDE Defaults 3 scenarios explained

What Happens if EVERGRANDE Defaults? 3 scenarios explained A Likely Scenario Here is what strategist Joachim Klement from broker Liberum says : "Given the large amount of debt issued by Evergrande, fears about a spread of the crisis to other property developers in China and eventually the financial system in the country are justifiable. However, the Chinese Government and People’s Bank of China will likely to follow the template of the Long Term Capital Management(LTCM) hedge fund in 1998, which would result in China Evergrande being allowed to collapse with the most profitable parts of its business bought up by rivals and the debt underwritten by either the People’s Bank of China directly, or by a consortium of Chinese commercial banks with the help of a liquidity injection”. “In this base case the collapse of China Evergrande should merely lead to short-term setbacks in stock markets but not a lasting effect throughout 2022.” An Adverse Scenario An adverse scenario with a disorderly default of Evergrande but its debts are guaranteed to prevent a financial crisis, the analysts would envisage local GDP growth declining 4% and the shock to developed countries would be in the order of 1% to 1.5% and to the United States in the order of 0.5% to 0.6%. The prices of oil and other commodities would be most affected, with oil prices expected to drop by more than 30% and prices for iron ore, aluminium and copper to possibly drop even more. A Severely Adverse Scenario In a ‘severely adverse’ scenario, a disorderly default of Evergrande’s debt and with no bailout for the bondholders, we would expect the default of at least one major internationally linked bank or insurance company, "creating international contagion through financial linkages" and an 8% decline in Chinese GDP and "a similar shock as the US and Western Europe did during the global financial crisis of 2008". ---Reference--- : Proactive Investors : https://bit.ly/3ih9HJf Nikkei Asia WSJ Reuters BBC The Guardian

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