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What the collapse of a company owing $300 billion means for the world (www.businessinsider.com)

submitted 9 months ago by [email protected] to c/world

79 comments fedilink hide all child comments

A Hong Kong court ordered the liquidation of China Evergrande, the world's most indebted property developer.

Evergrande has assets of about $245 billion, but owes about $300 billion.

Its demise is a "controlled collapse," but still raises systemic risk and will hurt investors, says an analyst.

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[–] raynethackery 14 points 9 months ago (2 children)

Will this affect pensions funds? Do they typically use these types of investments?

[–] [email protected] 4 points 9 months ago (1 children)

Probably not very much.

Unless I’m mistaken this is a Chinese company trading on the Chinese market. Unless someone was specifically looking to be in the Chinese real estate market (which was very hot about a decade ago iirc), they wouldn’t have a lot of exposure. I think the Chinese market has been in the shitter recently, so I’m not sure who’s holding them right now
Retirement funds (pension funds and 401k target date funds, which is where most of the money is these days I believe) skew very conservatively. They spread their money across markets (so like 5% tech, 8% utilities, 7% municipal bonds, whatever). They might have a chunk in a bucket of “foreign” markets, but even those would be spread across multiple industries. I’d be surprised if any of those funds had more than a fraction of a percent in a single company like this.
Target date funds get their name from the fact that they’re investing with the expectation that you’ll retire at 65, and the closer that date gets, the more conservative the investments become. People who are retiring soon will have even less exposure to this, and people who are retiring in 20 years will never know this happened.

The real question is whether there’s going to be a ripple effect but it’s not looking like that yet.

[–] ralphio 3 points 9 months ago

It trades on Hong Kong Stock Ex so not a traditional Chinese market, but technically a Chinese one nonetheless. Honestly considering how many tech stocks are traded in retirement funds today, Evergrande probably once seemed like a relatively conservative investment.

Rule of thumb is about 1/3 go to foreign investment for a typical retirement account in the US. But you're right, it should be a very small part of the average portfolio.

[–] ralphio 2 points 9 months ago

Yes, both stock and bonds. But the stock and bonds have been trading near zero for a couple years so the damage was done in '21.