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Why Shares of China Evergrande Group Are Rising Today

By Bram Berkowitz – Nov 12, 2021 at 2:11PM

Key Points

  • China's second-largest property developer successfully made debt payments on two bonds Wednesday.
  • Chinese regulators are also considering easing certain restrictions that would make paying debt down easier for some of the developers.

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The company recently made its debt payments and Chinese regulators are considering easing restrictions that make repaying debt more difficult right now.

What happened

Shares of China Evergrande Group (EGRN.Y) continued to rally Friday after China's second-largest property developer earlier this week made debt payments on its bonds, and as Chinese regulators mull actions that would help debt-saddled developers in the country. The stock had risen more than 18% as of 1 p.m. EST.

So what

For several months now, the market has been concerned that China Evergrande Group would default on its debt payments, a move that would disrupt markets all over the world. Some even compared the event as potentially similar to what happened with Lehman Brothers during the Great Recession.

On Wednesday, the deadline for the debt payments, investors were concerned that China Evergrande Group might not be able to meet its obligations. But the developer came through just in the nick of time and made the payments, once again avoiding default.

Then yesterday, media outlets reported that Chinese regulators may ease some restrictions related to how much debt developers can take on. The restrictions, according to The Wall Street Journal, make it difficult for developers to sell assets and use the proceeds to pay off existing debt.

Red line with arrow moving upward.

Image source: Getty Images.

Now what

While I am sure that an easing of regulations would help China's beaten-down real estate sector, the Chinese real estate market is clearly very uncertain right now with a lot of potential downside. I am staying away.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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