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You may have watched stories on the news recently about Evergrande, the failing Chinese building and construction giant. They may collapse in the next few days given the massive debt they hold.
We wanted to give you our position on this unfolding issue in a timely manner so as to allay any fears or concerns you might be having given the media commentary.
The Chrysalis Investment Committee has looked into the implications of Evergrande collapsing, both on the Chinese market and on the Chrysalis SMA portfolios and Multi-Managed portfolio.
Comments from our asset consultants…..
“The Chrysalis SMA portfolios hold a number of global share funds and we have one property fund in the portfolios. Our investigations show that your investments have no exposure to Evergrande. The Quay Global Real Estate Fund does not invest in emerging markets, like China. Fidelity Asia does not hold Evergrande shares nor does the Pan-Tribal Global Equity Fund.
Evergrande is expected to default on their debt payments later this week. They have over $300 billion of liabilities, of which only $20 billion is owned by offshore investors. Therefore, a default should be contained within China. Indirectly, however, it could lead to wider liquidity issues for the property sector with property prices falling and miners being impacted, potentially triggering a broader economic slowdown in China, which will in turn hamper global growth.
At this stage commentators are indicating that the Chinese Government will not use public money to bail Evergrande out, but a likely scenario is that the local government in Guangdong may nominate a working group to manage an orderly restructuring. This restructuring could take several years, giving government officials and company management time to work through the issues, without creating widespread panic within markets. Market returns yesterday suggest that some form of solution could be possible and is being worked on rather than an outright default.”
It is important that we don’t ‘throw the baby out with the bathwater’ here, as there are many opportunities currently presenting in China in other sectors beyond property which will not likely be impacted if Evergrande folds.
That said, however, one of the many benefits of your portfolio being in an Separately Managed Account (SMA) structure is that if we need to act and make changes to the portfolio we can do so very quickly. The Chrysalis Investment Committee and our consultants are watching developments very closely. We don’t anticipate making any changes to the portfolios now. However, if we need to make changes we will let you know and take decisive action to protect and future your interests.
If you have any questions, please don’t hesitate to reply to our email or call the Chrysalis office on 02 9972 2633.
