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Is Evergrande the tip of the iceberg?


27 January 2022


Joanna Davies
Fathom's bite-sized chartpacks cover the highlights from our latest quarterly Global Economic and Markets Outlook presentation. Today, we focus on China.
 
The issue: If the handling of Evergrande and other highly indebted real estate developers becomes viewed as a withdrawal of the implicit guarantee that has not only underpinned China’s housing market but the rest of its economy for many years, it could cause the whole house of cards to come crashing down.
 
Fathom's view: China’s policymakers face the unenviable challenge of reducing the risks associated with an over-inflated housing market while avoiding a sharp slowdown. President Xi’s ‘jam today’ approach makes rebalancing the housing market unlikely, and will lead China further towards Japanification.

Fathom's strategy: Ongoing Japanification makes Chinese government bonds the more attractive Chinese asset — a view we have held since early 2019. As growth wanes there is also a danger that China’s policymakers lean on nationalism as a means of tightening their grip, suggesting greater caution when it comes to Taiwanese equities. There may also be opportunities in non-Taiwanese tech companies.
If you have any questions about the material or our China view, please get in touch
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