The possibility of a fall in the Chinese real estate giant was felt in the falling price of copper and in the strengthening of the dollar.
Fears of a collapse of Chinese real estate Evergrande are growing around the globe. This is the accusation of the international boards on the first day of the week, which started in Asia with falls such as 3.3% in the Hong Kong market, precisely where the firm is listed and collapsed this day 10.24%, accumulating a setback 84.7% so far this year.
From there, sales were replicated in the West, with declines of around 2% in European stock markets and more than 1% in the main Wall Street indicators. Of course, the Chilean stock market folded to this red wave and in the first session of the week after National Holidays the IPSA fell 3.9%. Unfortunately, this is not the only way in which the Evergrande crisis is felt in our country.
“There are two main dimensions that could impact the price of copper. The first is that a fall in Evergrande generates a systemic financial crisis due to the strong links between the real estate sector and the financial sector. The second is that this crisis affects the development of the real estate sector in China and with it the consumption of raw materials such as copper, ”says Juan Carlos Guajardo, director of the consultancy Plusmining.
“In the short term, it will generate greater risk among commercial banks, which can affect the availability of credit. In addition, other real estate developers are likely to become aware of the possible implications of this crisis on future government policy in this sector and, therefore, seek to reduce leverage in the short term, which will probably imply a slowdown in new projects. real estate ”, adds the expert in the red metal.
His opinion is shared by Manuel Ugalde, head of studies at XTB Latam, who details that “the direct effects that the collapse of Evergrande would have on copper prices are derived from the fact that a little more than 50% of its world consumption comes from China. , with the real estate and electricity sectors representing more than half ”. In this context, the analyst indicates that “less activity in the real estate sector will immediately translate into a reduction in demand for the commodity.”
In this way, only in the day of this Monday the noise that the second largest Chinese real estate is generating has led to a fall of 3.07% in copper, the largest drop in a month that leaves the pound at US $ 4.148.
“We see it below or around US $ 4 a pound, because there is still little copper supply. But it is difficult for us to see the prices we saw a few weeks ago of around US $ 4.3. This scenario is far removed if the situation of this company were to become more complicated, ”says Martina Ogaz, investment analyst at EuroAmerica, who also warns about the effect on iron prices, given the participation of some Chilean companies in the sector.
On Monday, iron futures in Singapore fell 11.5% to below US $ 100 per ton.
“A total collapse in Evergrande will result in the scrapping of a large number of construction projects and that will mean a significant reduction in the demand for metals,” says Malcolm Freeman, director of the British brokerage Kingdom Futures, in a note to his clients quoted. by Reuters.
Guajardo indicates, in this sense, that “real estate and infrastructure activity continue to be the largest consumer sectors of individual metals in the Chinese economy, and due to their great political relevance, the Chinese government would try to address the crisis with direct or indirect interventions that would tend to lessen the effects of this crisis ”.
Strengthening of the dollar
Meanwhile, Ogaz also warns of the implications for the currency market. “On the exchange rate side, the risks are important, especially due to this greater aversion to risk and the risks of contagion that exist in the financial markets due to this possible bankruptcy of the company. This is already evident with a multilateral one dollar that has risen a lot ”, indicates the analyst in the light of a Dollar Index that marks 93,312 points, compared to the 92,575 that she registered a week ago.
In Chile, the foregoing was translated into a rise in the dollar in this Monday’s session of $ 3.79, reaching $ 788.8, so that so far in September the Chilean peso rises $ 14 and in the year a total of $ 77.64.
As a result of risk aversion, the turmoil has also been felt strongly in the cryptocurrency market, with bitcoin losing 7.74%; ethereum, 8.31%, and litecoin, 8.26%. “This liquidation is the continuation of a well-established pattern in which traders charge for their riskiest assets to cover margin calls or remain on the sidelines until the markets calm down and they are more comfortable returning to riskier positions,” he told CNBC Leah Wald, CEO of Valkyrie Investments, a firm specializing in alternative asset management.