What happened
Shares of China Evergrande Group (EGRN.F) were heading lower today even as the S&P 500 moved higher and Chinese stocks were generally flat on the day.
The culprit seemed to be yet another report showing big-money investors are steering clear of the Chinese real estate sector, including Evergrande.
Evergrande stock closed down 8.7% after trading as much as 16.7% lower on Wednesday.
So what
This morning, Bloomberg reported that the world's biggest high-yield bond funds, including from BlackRock, PIMCO, and UBS, are cutting their exposure to the Chinese real estate sector, which is expected to worsen a liquidity crisis for an industry already reeling from multiple headwinds, including excessive debt, a valuation bubble, and multiple COVID-19 lockdowns.
Notably, the bond funds have nearly erased their exposure to Evergrande, which had been the most heavily traded Asian junk bond before its default last year. Evergrande debt now makes up just 0.14% of BlackRock's high-yield fund, and 0.23% of PIMCO's junk bond fund.
Evergrande defaulted on its debt last December, but never formally declared bankruptcy, and investors seem to be treating the rest of the Chinese real estate sector with caution until they get more clarity from the Chinese government.
Now what
Evergrande now trades for just over $0.10, down more than 90% from where it was early 2021 before concerns started swirling about its ability to stay afloat. The company is going through a debt-restructuring plan, and shareholders seem to be holding on to the slim prospect that they won't be wiped out. Considering Beijing's reluctance to intervene on Evergrande's behalf and the broader headwinds in the Chinese economy, it seems almost certain that the stock will go to zero.
