The fallout of Evergrande

18 Sept 2021

Dear Fellow Investor,

The front-page financial news last week was the fallout of Evergrande, the Chinese developer and conglomerate.  Shares of Evergrande collapsed and trading of their bonds was suspended.  The Hang Seng lost 6 % and Asian markets fell.  Buyers of Evergrande condos may lose their deposits.  The root causes of the problem were too much debt and the ego of the CEO who is an empire builder. Multi billionaire Mr Hui, the CEO came from very humble beginnings as he was the son of a wood cutter. He joined the communist party and in 35 years made many connections which enabled him to borrow money to finance his businesses.  His businesses included electric cars, property development, a sports team and mainly businesses favourable to the interests of the CCP.    According to Bloomberg, despite the panic, behind the scenes multibillion of bailout funds are being arranged by the Peoples Bank of China. If not and there is a liquidation like Lehman Brothers, the CCP could lose support and the over 100,000 employees of Evergrande could lose their jobs. Already there are demonstrations by investors, suppliers and property buyers.  The CCP just like the US Federal Reserve has the power to create money out of thin air to cover the problem.   This is why in my opinion it is a non-event.  I would venture to say Mr. Hui will voluntarily give up a large portion of his wealth to aid in the restructuring. This will be positive for our Asian shares once this uncertainty is removed.

On the local front, foreign funds continue to buy blue chip Malaysian shares during the recent consolidation.  EPF was selling minor amounts.

 

Weekly EWM the ETF of blue-chip Malaysian shares traded on the NYSE. Notice the wide range price bar one month ago. Notice the high volume. This according to volume spread analysis is a POC or point of change which signals a shift from supply to demand. On this POC there was foreign fund buying. As long as price trades within the range of the wide range price bar expect higher prices.  According to today’s Edge, death and hospitalization rates in Malaysia and Singapore are dropping and the economies are opening up. There is more traffic on the road and Kuching is planning to open for tourists just like Langkawi.  The new health minister, Khairy Jamaluddin is doing a good job as vaccinations continue to be rolled out. As business gets back to normal, expect our recovery stocks to perform.

Take care

Bill  

 

Anxious buyers walk near unfinished residential buildings from the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 16, 2021.