Evergrande Crisis and Its Impact on Stock Exchanges

Evergrande Crisis and Its Impact on Stock Exchanges

While Evergrande is known as one of China's most prestigious real estate companies, it was on the agenda of the whole world with the financial difficulties it experienced towards the end of 2021. However, this crisis was not just about a company's financial troubles, it was also a remarkable example of how it was reflected in global stock markets.

What is the Evergrande Crisis?

Evergrande is a giant actor in China's construction and real estate industry. The company's debts rose to over $300 billion by the end of 2021. This enormous debt burden has pushed the company to the brink of bankruptcy, making it one of the most indebted companies in the world.

Direct Effect on Stock Exchanges:

Evergrande's shares fell sharply with this financial bottleneck experienced by the company. This had a particularly shocking impact on Chinese stock markets. Many investors had Evergrande shares in their portfolios, so this sudden decline deeply affected individual investors as well.

Chain Effect:

Evergrande was of critical importance not only for individual investors but also for many banks and financial institutions. Shares of banks and other financial institutions to which the company owed money lost value as Evergrande began to experience payment difficulties. In addition, this caused a loss of confidence in the banking sector, which in turn caused bank stocks to lose value in China and other stock markets around the world.

Global Unrest:

The effects of the Evergrande crisis were not limited to China. Considering its role in the world economy, this crisis also created uneasiness in the stock markets of many countries. Especially American, European and other Asian stock markets were negatively affected by this crisis. Investors were concerned that this financial crisis in China might turn into a global economic crisis.

Sectoral Impact and Long-Term Results:

These financial difficulties experienced by Evergrande had a wide impact on the real estate and construction industry. Shares of other companies operating in this sector also lost value. However, the most critical impact of this crisis was the change in investors' risk perceptions. If the crisis cannot be managed or government intervention is insufficient, it is possible for investors to turn to a more risk-averse approach and thus change their investment strategies.

Investor Reaction and Strategy Changes:

With the outbreak of the Evergrande crisis, investors re-evaluated their portfolios. Especially those who have invested in the real estate and construction sectors have started to take steps to reduce their risks. We observed that investors turned especially to gold and other precious metals during this period. This is known as a classic hedging strategy: in times of economic uncertainty, investors often look to assets that they believe retain their value.

Effects on Chinese Economy:

The Evergrande crisis also brought to light some concerns about the structural problems of the Chinese economy. For many years, the real estate sector has been the locomotive of the Chinese economy. However, the excessive growth and debt experienced in this sector have caused it to become more fragile than other sectors of the economy. This has demonstrated the need for the Chinese economy to grow in a balanced manner and the risks of over-dependence on a single sector.

Suggestions for the Global Economy:

The Evergrande incident revealed some of the weak points of the global economy. It was seen that the audit mechanisms needed to be made more effective, especially in order to prevent the debt burdens of such large companies from having such a big impact on the stock markets.

It was also emphasized that international financial institutions and central banks should take a more proactive role in such crisis moments. This will help manage the crisis faster and will be a critical step in preserving investors' confidence.

Impact on Crypto:

We observed that the Evergrande crisis, in addition to its impact on the stock markets, also caused fluctuations in the cryptocurrency markets. Especially in the first days of the crisis, there were serious declines in cryptocurrencies. One of the main reasons behind this decline was that investors tended to turn to cash by selling their crypto assets in order to meet their liquidity needs and reduce their risks.

However, interestingly, a recovery trend was observed in some cryptocurrencies in the later days of the crisis. This showed that some investors began to see cryptocurrencies as a store of value in times of economic uncertainty. In particular, Bitcoin began to be described as “digital gold” and began to be considered as a hedging tool like classical gold.

However, this did not eliminate the volatility of cryptocurrencies. The Evergrande crisis has once again shown that cryptocurrency markets are not independent of global economic events and can be directly affected by such major economic movements.

This situation gave the message to investors that they should be careful and conscious in their crypto money investments. While it is difficult to say anything definitive about the future of cryptocurrencies, events such as the Evergrande crisis could certainly have a significant impact on how this new financial asset class evolves.

Evaluation:

The Evergrande crisis once again revealed how intertwined economic systems are in the globalized world. An economic problem in one region can affect other regions, just like dominoes. This once again demonstrated the importance of investors following global economic developments closely.

In conclusion, the Evergrande crisis is full of important lessons for investors and economists. Such crises reminded us of how fragile global economic balances can be and how an event occurring in one region can lead to widespread consequences around the world. Therefore, it has become more critical than ever for investors to follow global developments closely and shape their strategies according to these developments.