Don’t be naive about Evergrande, says HSBC chief Noel Quinn

Don’t be naive about Evergrande, HSBC chief Noel Quinn says: Markets will feel the force of China’s crisis








The boss of banking giant HSBC has warned that the crisis at debt-laden Chinese real estate developer Evergrande could affect markets – and it would be “naive” to think otherwise.

Noel Quinn said at a Bank of America conference this week that the situation in Evergrande was “worrying,” with the capital and bond markets exposed.

He stressed that HSBC would not be directly affected by Evergrande’s woes, and said he felt “comfortable” with the bank’s exposure to the Chinese real estate market.

“I would be naive to think that the market turmoil does not have the potential to have a second- and third-order impact,” he said. “Obviously, it’s worrying with the changes taking place in the Evergrande situation. There is a potential for second and third order impacts, particularly in the capital and bond markets, and we need to stay close to that.”

He added: “Nothing has happened in recent weeks that will change that position in my mind as a bank.”

Shares of Evergrande, the world’s most indebted developer, rose 17 percent in Hong Kong yesterday after it signed a repayment agreement with a number of debtors, allaying fears of collapse.

But it hasn’t updated on the status of interest payments on some of its foreign bonds, which were due yesterday. If the payment is missed, it has a grace period of 30 days before it is considered in default.

Since the end of August, when the company first warned of its debt problems, its shares have fallen 38 percent. The announcement calmed some investor concerns about debt in excess of £220 billion.

“It’s too early to say if this is just a short breather or if it means a rescue plan is in the works,” said Donald Low, director of the Institute for Emerging Market Studies at the Hong Kong University of Science and Technology. .

Investment experts are waiting to see what China does.

“Until there is certainty about how the government will handle Evergrande, investors are likely to remain nervous,” said Catherine Yeung, investment director at Fidelity International.

There are fears that a collapse could create a knock-on effect in the Chinese economy that could spread to global markets, similar to the bankruptcy of Lehman Brothers in 2008.

The Evergrande crisis has arisen in the wake of Beijing’s wider crackdown on loans by Chinese real estate developers. The company’s liquidity crisis represents the latest regulatory risk for global investors after a chaotic year that has already ushered in unprecedented constraints in China’s technology and education sectors.