JPMorgan's Mixo Das believes Evergrande won’t turn out to be a global contagion issue, saying the property giant's situation is "very different" from that of Lehman.
As investors the world over stare at the financially-troubled Chinese property giant Evergrande, some are reminded of the 2008 financial crisis. Though the Indian equity market has shown strong resilience to a global selloff in the recent past, investors are hopeful, but have their fingers crossed.
JPMorgan's Mixo Das believes Evergrande won’t turn out to be a global contagion issue, saying the property giant's situation is "very different" from that of Lehman. He was referring to the 2008 collapse of Lehman Brothers -- then the fourth largest investment bank in the US.
“Evergrande probably won't even become a Chinese system-wide contagion issue. So the corrections they are seeing in the property space, in the banking space, will probably normalise as we get more clarity on how exactly the government is going to treat Evergrande,” Das, APAC Equity Strategist at JPMorgan, told CNBC-TV18.
His remarks come close on the heels of concerns about a contagion causing turmoil in global financial markets.
For now, investors' focus has shifted to key central bank meetings as they look past fears of a contagion effect caused by the Chinese property developer. Indian equity benchmarks rebounded to recover nearly all of their previous day's losses on Tuesday, as European shares bounced back and US futures signalled a strong opening ahead on Wall Street.
What is the Evergrande situation?
China Evergrande could default on its massive debt prompted investors to flee riskier assets. A major test for Evergrande will be this week when it is due to pay $83.5 million in interest on a bond, and another $47.5 million on September 29. Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.
Analysts believe that a credit event for Evergrande seems unavoidable, but the extent of a spillover effect into other markets will be contingent on whether Evergrande restructures or fully liquidates.
“I used to work at Lehman when it went down. And I can tell you that this situation is very, very different,” said Das.
"(It is because of) the very fact that the government is well aware of what's going on and seems to have a plan in mind of how it is going to deal with this. I don't see this becoming an out-of-hand blowout that takes out the whole financial system," he said.
Regulators have warned that its liabilities could spark broader risks to China's financial system. Investors also stare at the possibility of troubles at the country's property sector sending ripples across the world economy.
(Edited by : Aditi Gautam)