Macroscope | Why China’s Evergrande and energy crises could add up to a stronger yuan
- As distressed debt investors eye Evergrande bonds, the narrative around the troubled developer and the yuan is looking less gloomy
- Amid power shortages in China, it also makes sense to have a stronger yuan to buy more dollar-denominated energy
First, while property developer China Evergrande Group’s debt crisis rumbles on, it is now well and truly in the public domain. Markets have been aware of the situation for some time.
If the foreign exchanges had collectively calculated that Evergrande’s woes, and indeed the wider issue of Beijing wishing to see a general reduction in leverage in China’s real estate sector, should materially weigh on the value of the renminbi, then that should have already been priced in.
Clearly, although there is no guarantee of success for such investors, their bond-buying interest can help shape a broader narrative on China Evergrande Group that has been uniformly downbeat. In turn, this may have implications for currency markets, to the extent that the developer’s predicament could have been viewed as a negative for the yuan.
Additionally, in an atmosphere where comparisons were being made between Evergrande and Lehman Brothers, it would have been hard for portfolio managers to make a case for buying the renminbi, even if those same investors might not have opted to sell the Chinese currency.
