Intermoney | A slightly higher opening (Eurostoxx futures +0.3%) after yesterday’s 2% falls in the main American and European indices, with the Ibex registering a better relative performance, buoyed by the tourism and defensive sectors.
This environment of greater risk aversion and fears about economic growth also translated into additional moderation of IRRs. In the case of Europe, this was also supported by the statements from Villeroy, the governor of the Bank of France. He reiterated that the upturn in inflation is cyclical, which should allow a broadly expansionary monetary policy to be maintained.
The more cyclical stocks are suffering, with focus on real estate developer Evergrande (debt > USD 300,000 mln and liquidity problems to meet its payment obligations) and its possible derivatives. Investors are questioning what the impact of a debt restructuring/liquidation would be, and whether this could pose a systemic risk. The market is also analysing the possible spillovers at the financial level (creditor banks, insurers, investors in Evergrande) and in the real economy itself. There is the risk of China slowing down more than expected (the whole production chain related to construction and real estate accounts for 25% of GDP, and a large part of household wealth comes from real estate where the Evergrande situation puts downward pressure on prices). This could have implications for global economic growth, and particularly in sectors such as raw materials, given that the Asian giant is one of its major demanders.
Although there would obviously be multiple derivatives, we do not believe with the information available so far that it would be an event comparable to Lehman Brothers. We will have to keep an eye on the Chinese government’s reaction. Whether it decides to provide some kind of support/rescue (“too big to fail”), which would limit the impact and ensure that it remains an episode of volatility. It is also true that this news comes in a context of stock markets at record highs, where any risk factor causes an increase in volatility, serving as a trigger for logical and healthy profit-taking.
