Do you think the Evergrande crisis could also be a Lehman moment for the world? What sort of an impact are you seeing from Evergrande’s likely default on the global markets?
There are three things here; what happens to Evergrande should be of no concern whatsoever in the global markets. It is quintessentially a Chinese company. They have the majority of assets in China. It has a great deal of loans in China; it has nearly $300 billion worth of bonds and that means that if it were to go bankrupt, a lot of bond holders will be left high and dry but a great deal of those bond holdings are in China. The Chinese markets are not down, the Hong Kong market is not down and everybody with minor exceptions in Thailand or Indonesia which are really a little bit irrelevant as far as this is concerned, are down.
So this is a domestic issue in China, nothing else. If it is a Lehman moment, that is going to be the Lehman in China, not outside except for some foreigners holding the US dollar denominated Evergrande bonds.
So there is going to be a cascading effect. If there is a Lehman moment within China, there will be a slowdown in China growth and that will impact global growth. How much impact will that have?
Come on, that’s way too exaggerated! If there is a cascading movement inside China, this is not going to be a financial crisis which is going to stop the Chinese economy from growing. It will have an impact on the property sector in China and this has been expected for a very long time. I am rather happy that the Chinese authorities are behaving very symmetrically. They jumped on the service sector companies. I do not want to call them tech, because that is another big lie that the Chinese have been hard on technology. They are not. They are being hard on some aspects of application of technology. They jump heavily on those like Alibaba, Tencent, Didi but they have done absolutely nothing so far on Evergrande. It is very strange as that is something that should have concerned them but apparently they might decide to teach the market a lesson. So if they are going down, they are going down by themselves and possibly they know something that we do not know.
This so-called cascading effect is not going to be that severe. I am not underplaying the importance of Evergrande in the Chinese financial market. It is very big. It is the highest leveraged property company in the world, never mind China. But I do not think that the spread from that is going to affect the UK, France or the United States.
Another big event is the buzz around tapering. Do you think that a lot of it is priced in and if there is a gradual tapering, markets would not take it negatively or equity asset valuation may not see major correction?
Actually it is becoming a little bit boring talking about tapering because the Fed is very clear about it. Yes they will taper but they will taper only when the inflation and unemployment is within the appropriate range. The European Union has really no plans. They have a very special kind of tapering. There is an absolute sum that they are planning to spend. They do not say we are going to spend X every month. They have an X amount to spend. They have spent nearly 80% of it and therefore the degree by which they increase or decrease is much more variable than that of the United States that have said we are going to be spending X every month. The Japanese do not have any plans for tapering soon.
The only thing which is in doubt about the US Fed tapering is the timing — when will it happen and the form in which it will happen. It will happen in different forms depending on whether you are looking at the United States or the European Union.=