Dire Evergrande warning amid fears of ‘brutal’ collapse

A leading investment advisor has dismissed suggestions China Evergrande is recovering from its debt crisis, warning the real estate giant is in more trouble than ever.

David Stein, a finance author who also runs an investment education platform, says he’s concerned about recent delays in the release of Evergrande’s financial statements and legal challenges it will face from creditors.

Evergrande ‘deep in the woods’

Experts have pointed to some signs Evergrande had staved off a financial catastrophe, but when asked on the ‘We Study Billionaires’ podcast if the company was ‘out of the woods’, he said “if anything, they’re deeper in the woods”.

“This is a highly, highly indebted company,” he said.

“China gave companies the opportunity to sue Evergrande in court to collect.

“So if you’re a creditor of Evergrande you’re going through the workout, hoping to get some money back.”

David Stein Evergrande
David Stein, investment advisor (Source: Twitter)

Wider market concerns

The warning comes as George Calhoun, a quantitative finance expert, predicted dark times ahead for the entire Chinese real estate market.

Commenting on a recent missed bond payment by Chinese developer Sunac, Calhoun said “the Chinese real estate market is finally collapsing (and) it will be brutal”.

Contagion ahead?

So how badly will the broader market be affected by the developers’ troubles?

David Stein says that remains to be seen.

“In terms of contagion, we haven’t seen it,” he said.

“China has way bigger problems than Evergrande right now, with the spread of the virus … and the birth rate.”

Stein went on highlight a Financial Times article that said China’s birth rate fell by around 30% between 2019 and 2021.

China’s ‘demographic crisis’

Stein says China is facing a huge demographic crisis, where some experts predict the population could be cut in half by the end of this century.

“China’s always been this huge growth story and it’s sort of fascinating why China gets all this publicity on that aspect,” he said.

“Yeah, there’s a lot of people that live in China but the population is not growing and it makes up less than three per cent of the global stock market, less than the U.K.

“And so China gets a lot of press, but I’m not bullish on China just because it has some very big demographic headwinds.”

India’s time to shine?

Stein said there are areas of the world where the working age population, is growing.

“India, for example, has much more favourable demographics than China, and so I have a meaningful position in India,” he said.

Others, however, have not lost hope in China.

A key economic indicator, China’s value-added industrial output is up 4% year-on-year) and the nation’s National Bureau of Statistics suggested April could be the peak of the nation’s current economic slowdown.

“We believe the operation of the economy is gradually improving,” said Fu Linghui, a spokesman for the National Bureau of Statistics.