Key Points
Jefferies' global strategist Chris Wood said the risk of a 'real Lehman moment' in China is rising in the context of a shadow banking crisis intensifying in the country..
In his 'Greed & Fear' newsletter, Wood said the news this week on Chinese asset manager Zhongzhi Enterprise not making interest payments on wealth management products is likely to be followed by others if property sales continue to decline, putting more financing pressures on private sector developers..
"By contrast, Evergrande was not such a Lehman moment, contrary to what the media said at the time, primarily because Evergrande's problems were induced by the authorities in terms of the "Three Red Lines" policy," said Wood in his newsletter...
"This is on top of the huge blow to the confidence of the property-owning middle class triggered by last year's Covid-related lockdowns, which has raised the key question of whether permanent damage has been done to China's command economy model," he said...
Though China began to relax the "Three Red Lines" policy, this easing signal was subsequently undermined by the lockdowns resulting in the biggest downturn in the residential property market since the market was privatised in the mid1990s, said the Greed & Fear newsletter...
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