In the last month, markets looking for Alibaba (NYSE:BABA) to find a bottom are looking in the wrong spot. Instead, investors exposed to China should watch the Evergrande developments.
Evergrande was once China’s second-largest real estate developer. It has too much debt. If it goes under, the fall-out will hurt around 1.5 million people who have deposits in Evergrande’s unbuilt homes. The Chinese government needs to minimize the impact on its people. So far, it did not indicate that it would step in to save the busted company. It received loan extensions and help from corporations.
This only delays its demise. The firm has over $300 billion in debt, with $7.4 billion due next year. Bondholders will lose at least 80% of their investments.
Had Evergrande not increased acquisitions as China’s property boom peaked, the firm would not be where it is now. IT should have anticipated Beijing’s new measures set in August 2020 that monitored debt levels of big property developers.
Over in the technology segment, China’s sudden introduction of new restrictions is hurting valuations. Yet investors betting on Alibaba or any Chinese tech firm to bottom face Evergrande macroeconomic risks.
Investors should not take big bets on the region rebounding. This includes minimal exposure to BABA stock and companies headquartered in the region.
