We live in a globally connected society. If something happens on one side of the world, there will be an impact felt on the other. Our financial systems rely upon each other, and just about every major nation is hugely reliant on foreign investments and money from across the globe. That is why many in the United States are panicking right now about a situation occurring thousands of miles away in a country that is traditionally considered a major rival of the United States.
However, most sources indicate that there won’t be a bailout unless the worst-case scenario occurs. While the situation is obviously drastic in China, let’s look at the impact of Evergrande’s potential collapse domestically.
Expert opinion on how Evergrande is going to impact the market in the United States is divided. The immediate impact of the crisis was that the Dow suffered. 614 points were knocked off the Dow in the wake of the news of the potential collapse of Evergrande. U.S investors responded to the tight debt deadline by pulling away from real estate investments, which significantly dropped the market.
According to a MarketWatch interview, experts are saying the impact of Evergrande will be felt primarily in the Chinese real estate market rather than anywhere else. “Right now, I think this is a bigger concern for China, rather than the U.S. economy,” said Rubeela Farooqi, chief U.S. economist of High Frequency Economics. In the same interview, another expert put down concerns of a Lehman Brother-style domino effect. “Is this another Lehman moment for the U.S.? I’d say no,” said Jay Byron, chief economist at Wells Fargo Corporate & Investment Bank.
What experts do say is a risk isn’t the U.S real estate market being impacted by Evergrande. It is a potential decline in exports from China as a result of an economic crisis. However, this type of thinking is based on a lot of hypotheticals.
Overall, the U.S real estate market won’t likely be impacted in a significant way due to Evergrande. What it does do is increase volatility in the global financial system, which is why some investors have panicked. Overall, Evergrande should serve as a warning to U.S real estate property service firms on the risk of accruing significant debt without liquidity.