Each day we get new reports of personnel layoffs at major corporations: 10,000 layoffs at Amazon, 10,000 layoffs at META (FB) and 50-75% of the staff at Twitter. Not going to be a Merry Holiday Season as all of these high priced Engineers and Computer Scientists try to find comparable positions in the Tech industry, prior to year end.
A similar implosion is occuring in China where the great economic miracle seems to have run out of steam, as the mega property developers, like EverGrande cannot sell new apartments and cannot pay even the interest on their billions of outstanding loans. China is also engaged in some fancy financial engineering to avoid the usual bankrupty court procedures. For example, they are demanding that the CEO’s of these companies use their own personal funds to pay the interest on outstanding loans, even if the Company is bankrupt.
It is my gut feeling that outside investors are going to be left with empty shell companies and worthless bonds.
Investing in China is like investing in the “Hotel California”: “You are always welcome to come in, but you can never leave.”
Chinese authorities are trying to make loans easier to obtain to stimulute the buying of apartments. But investors are stuck with massive amounts of apartments that have been purchased, but not completed. And the market prices are falling. And many of these homeowners are refusing to make their mortgage payments.
Everyone loves an asset when prices are rising, but only want to sell when prices are falling. A recession in China could easily turn into a deflationary spiral.
Although not investment advice, I would use rallies to reduce exposure to most Chinese related stocks until the extent of this property crisis is clearer.